Bill Mencarow of The Paper Source [Note Investing for Retirement]

In this episode of the Professional Podcast series, Bill Mencarow will teach you how to get started with note investing for retirement and long term wealth building. Bill is an experienced note investor and in this interview, he talks about how you can approach note investing to maximize your returns for your retirement.


Brecht Palombo:              Welcome back everybody to another episode in the DistressedPro Professional Podcast Series. Today, I’m very happy to have Bill Mencarow.

Brecht Palombo:              On the podcast, he is, as far as I know, the authority on notes and note investing. When I first started … Geeze Bill, how long have you been in business with Paper Source?

Bill Mencarow:                  Paper Source was started in July of 1987.

Brecht Palombo:              Wow.

Bill Mencarow:                  Yeah I had just left Capitol Hill at that point, I was working as a congressional staff in the U.S. House of Representatives for quite a few years and realized that you get old in that job real fast and I had done everything I wanted to do on the Hill.

And so I was kind of between jobs, didn’t know what I wanted to do and so I had been investing in, I bought a piece of, a single family house when I worked on the Hill, as an investment. And I had all sorts of trouble with tenants. I didn’t know how to be a landlord at all and didn’t have very deep pockets. So I started reading all I could and going to seminars on landlording and I met people there who invested in notes. And this was all new to me, so that’s how I got started in the early ’80s.

And then when I, going back there for a minute, when I left Capitol Hill, I thought, well there’s no newsletter on notes. A lot on real estate but nothing about notes. So I started that with my wife Allison, out of our guest bedroom and it kind of took off. I thought it would just be a temporary thing, just to have some fun with and try to figure out what I was going to do when I grew up. And it just took off from there.

Now we have a monthly publication, we’ve published every month since 1987. It’s about a 14-page publication on notes. It covers all aspects of it, new laws, court decisions, legal things going on, how to negotiate, what to do, how to find the notes, all those kind of things.

And we have an annual convention. The first one that was ever started for the note industry and that’s at the end of April every year in Las Vegas. And we sponsor another seminar, a small boutique kind of a seminar on notes each year.

In fact, we have one coming up in June in San Antonio, Texas. Tom Henderson, who is a very well known, very well respected note teacher, is going to be teaching a two-day class for us. So if people are interested in that, that’s at and we can talk about that later if you want.

Brecht Palombo:              Great. Well so when I first even learned that an individual could purchase a note, which is probably 11 or 12 years ago now, and I set out to learn a little something about it, your site was one of the first things that I found and I immediately subscribed to your newsletter. In fact, kept a three ringed binder with all the back issues so I could go back in there and read through them because it really is… You know the panel of experts that you have there and the fact that it reliably comes out every month and always has good information and it really sets a bar, I think, for note investor information. You really provide a lot and it’s very very reasonably priced. It’s 100-something bucks a year, maybe, or something like that for your-

Bill Mencarow:                  I wish it was that much. It’s $79.

Brecht Palombo:              $79 a year. A steal at any price. It is excellent. So, I thank you for providing that and it was really one of the first places where I, like I said, where I started to learn anything about notes. Having come from the real estate side and of course, my initial experience with notes was mostly foreclosing on them and cleaning them up.

And so that’s not what we’re going to talk about today though. I think what I’d love to hear today is, as somebody who’s been investing in notes and has been in this industry for as long as you have as really a pioneer in it and an authority, I’d be interested just to talk with you a little bit about how my audience can get started with note investing. Because the way a lot of folks find us, sometimes they find us because they are, they’ve already been introduced to notes and they’ve heard something about nonperforming notes and now they want to pursue that.

But sometimes what happens, in fact probably the majority, are out there looking for real estate. They’re looking for rental real estate. They’re looking for discounted property and this sort of thing and then along the way, they discover that there’s this thing called notes that’s kind of like real estate and you still get payments but for a lot of folks it seems abstract, like even hard for them to get their heads around.

And so as an experienced note investor, I’d love to talk a little bit about how to do this in sort of a long-term disciplined way and create wealth and even retirement from that. Because I think that’s probably the goal for most folks who end up finding this as a cash flow opportunity and want to learn more about it. So I’d love it if you could sort of take us inside that.

Bill Mencarow:                  I’ll be happy to. Let me preface it by saying I took my two day introduction to notes course and boiled it down into eight email lessons, fairly lengthy, and I offer them for free on our website because I want people to go into this with their eyes open. I talk about the good and the bad, what can go wrong, how to protect yourself, and that kind of thing. And I just want people to take that before they do anything else and really make a decision as to whether this is for them. It’s not for everybody. So that’s available at Okay, that’s a preface.

Okay then so we’ll start with the basics. We’re talking about seller financing when we talk about notes. A note is an IOU. And the note owner becomes the bank, and I’ll give you an example. Let’s take a Mr. Smith sold his house, and the seller financed, and let’s keep it real simple and with low figures, $10,000 note that’s secured by the house and let’s say it’s the first lien.

Obviously, it’s going to be more than that, but let’s just play with the numbers because I have memorized the $10,000. It’s advertised for 10 years, so the buyer of the house Mr. Jones will pay Mr. Smith, the seller of the house, a monthly payment just like he would to the bank, only in this case the house seller becomes the bank. That comes out to $132 a month for the next 120 months at whatever interest rate that is.

So Mr. Smith is rocking along getting the $132 a month from his house buyer. His note is secured by the house. And you can come along and offer him cash for that note, a lump sum of cash, so you could offer $8,000 for it. Now he might say. “Well, why should I take $2,000 less?” And you say, “Well because Mr. Smith, I’m buying your risk. There are no guarantees what’s going to happen in the next 10 years with Mr. Jones’ life, that he’ll make his payments on time, or I might have to work to get them if he defaults. I’ll have to go through the expense of a foreclosure, the time, and the headaches, which could take months or, depending on the state, could take years,” as you know Brecht.

So when you say Mr. Smith, the owner of the note, once foreclosures completed, how much damage will been done to the house. It’s not uncommon for people to damage houses when they’re foreclosed on. So if you were Mr. Smith and you needed some money because people sell notes for only two reasons, they either need money or they have a problem they want to get out of.

So if you’re Mr. Smith and you have a problem you want to get out of, you’re afraid that he’s not going to pay or you need the cash right now for whatever reason. Would you rather have $8,000 now or would you rather hope that Mr. Jones sends his $132 every month for the next 10 years and have to deal with the consequences if he doesn’t?

So that’s what we’re talking about and you become the bank whether you’re the seller of the property that holds the note, or whether you’re the note investor that buys the note. When you end up with the note, you become the bank, you have a lien on the property. You have to make sure you have enough equity and there’s a number of places, number of things you have to do to make sure that you have due diligence, your proper due diligence. I call it the three Ps, the payer, the property, and the paperwork and you have to do your due diligence on all three.

But if you’re well secured, somebody wants in, I wish it was me originally. But somebody I’d like to credit them if I knew who they were. You should only invest in a deal, like a note deal, if you hope that they won’t pay you because you’d get so much equity in the property, it would be a great payday for you if they stopped paying.

So that’s basically what note investing is all about in a nutshell. There’s a lot more to it, there’s due diligence on the payer, on the property, on the work, then you’ve got a good investment. But that’s the basics of it. Do you want me to go into any more of that, I’ll be happy to do that?

Brecht Palombo:              Well I guess I’d like to talk a little bit about if today’s chat is sort of an intro to note investing and I’m somebody who… A lot of the folks I hear from, they have some retirement funds but it’s not quite where they want it to be. A lot of them took a pretty good hit in the last crisis, and maybe it hasn’t recovered. Maybe they’re gun shy, they didn’t get the run up like they would’ve liked to over the last 10 years with the S&P and all that. So now they’re discovering this and so I guess, could we talk about how they would get started? If you’re just at a cold start today.

Bill Mencarow:                  In investing in notes?

Brecht Palombo:              Yeah.

Bill Mencarow:                  Well, I don’t want to sound self-serving, but I think that somebody ought to take my free e-course.

Brecht Palombo:              Yeah for sure. I have taken your free email course. Actually, when I first signed up, and cause you’ve had it out there for a long time, it’s been available.

Bill Mencarow:                  That’s right. I do revise it. A couple times a year I go through every word and revise it but that-

Brecht Palombo:              Oh that’s good.

Bill Mencarow:                  That’s one way to get started.

Brecht Palombo:              Yep.

Bill Mencarow:                  Another way to get started is to… There’s a couple of good seminars out there, about how to get started in notes. And if somebody wants to email me, because I don’t know, this podcast, once it’s on the internet, it’ll be around forever and so I… But if somebody email me I’ll be glad to tell you my current recommendations for a course.

Brecht Palombo:              Okay.

Bill Mencarow:                  If you can find a book on the used market called Invest in Debt, by Jimmy Napier, and if you can overlook the way it’s written, it’s got tremendous information in it. I’m sure you’ve read it. Correct?

Brecht Palombo:              Actually I haven’t read that one, but I’ll look for it.

Bill Mencarow:                  Oh, well Jimmy has a very folksy style, but it had a great influence on me in understanding how discounted cash flows work and how to figure out yields and things like that. So it’s called Invest in Debt, by Jimmy Napier.

Brecht Palombo:              Most of the folks you’re talking to today, are they investing with retirement funds, or are they investing with extra capital, or how are they approaching that?

Bill Mencarow:                  Actually there are several different approaches. Your own capital, after-tax capital, you can certainly use your IRA to buy notes, and I can go into that in a little more detail in a minute. You can also if you don’t have the cash, you can broker notes.

Brecht Palombo:              Okay.

Bill Mencarow:                  You don’t need a license in almost… There are a couple of states where you need a license, California being one. You need a real estate brokers license, but in every other state you don’t need to be licensed to be a note broker. It’s different from a mortgage broker. A mortgage broker originates home loans or property loans. A note broker finds notes and gets an investor for them and takes a commission.

Brecht Palombo:              Right.

Bill Mencarow:                  We also teach that on our website,, so if you don’t have the funds that’s a great way to do it, and again I go more into that in my free e-course. If you want to talk about the retirement aspect of it, I think notes are a very powerful tool to have in your retirement plan. A lot of people put money in notes and real estate in their retirement plan. Let me go back to our example. So our little $10,000, Mr. Jones, Mr. Smith example.

Brecht Palombo:              Sure.

Bill Mencarow:                  Let’s say you bought that note and you paid $8,000 to receive $132 a month for the next 10 years, 120 months. So what is your yield on that? Expressed another way, what kind of interest are you getting on your $8,000. Well if you plug that into a financial calculator, you get %15.63, which is a pretty darn good deal for a well secured first mortgage.

But, let’s take it a step further. You contact a note investment firm. There are about, I don’t know how many. We have a directory of them. I think there’s probably 30 or 40 around the country. They’re small companies or mid sized companies, a couple of them are banks, that are in the business full time, investing in notes. So you contact one of those firms and you ask them, “I’ve got this note that pays $132 a month, how many payments of $132 a month would you buy for $8,000?” Now, if the firm is currently investing at, let’s say, %9.6 for that kind of note. The answer is, to get that kind of return, for them, on $8,000, they have to receive 83 payments of $132. Okay?

So you assign them… You know, do the paperwork. You assign them the next 83 payments. The firm pays you $8,000. Mr. Jones then, mails his payment to them, the note payer. Now he mails it to this firm. Now what’s your out-of-pocket cost for that transaction? Nothing, right? You paid $8,000 for the note, you got $8,000 for the note from the investment company. At the end of the 83rd month, the firm has received all the payments that they contracted to buy, so they’re out of the picture. Remember, the note had 120 payments on it. Mr. Jones has agreed to make 120 payments. So who gets the remaining 37 payments? You do, and you have nothing invested in that.

Brecht Palombo:              Yeah.

Bill Mencarow:                  So, don’t try to put that in your calculator, it’s going to break.

Brecht Palombo:              So there’s a real delayed gratification strategy there, but the IRR is incalculable. It’s so high.

Bill Mencarow:                  Exactly. Exactly. Well, what you can do, is once the investment firm pays your $8,000, go out and find another deal, another note. Another $8,000 deal.

Brecht Palombo:              Well maybe we should talk about that for just a minute because I spend a lot of time talking about working with institutional sellers and navigating your way through your special assets departments, and your secondary marketing and all that. But what you’re talking about here with Mr. Jones and Mr. Smith is a whole other avenue. Maybe you could… I know it’s not something we can touch on in the next six or eight minutes, or complete in the next six or eight minutes, but maybe we can just touch on finding these kinds of deals that you’re talking about.

Bill Mencarow:                  Sure. There are a lot of ways to find them. One of my favorite ways is to join and attend real estate investment groups. In person preferably, but if you don’t have any in your area, like my little town of Kerrville, Texas, as I’ve mentioned to you Brecht, our town is so small, we don’t have a town drunk, we all have to take turns. So we don’t have any real estate group here, but larger towns do. There’s also online groups. Let people know that you buy notes, that you’re interested in buying notes. I have cards printed up, flyers printed up. If the people that run the group are amenable to you putting out flyers. You can network with… If you start thinking about, well who comes in contact with real estate notes? Real estate agents.

Brecht Palombo:              Right.

Bill Mencarow:                  When they have clients who do seller financing. Who else? Accountants, title company people.

Brecht Palombo:              Yep.

Bill Mencarow:                  Real estate attorneys. So if you start thinking in those terms, so who should I be networking, who do I need to tell that I buy notes? And you’ll start thinking of more and more people like that.

Brecht Palombo:              Yeah.

Bill Mencarow:                  Also, look at the MLS, Zillow, look for property sellers who are offering owner financing, or if you could see a deal where you could talk to somebody about seller financing their property. I like the networking part of it. You can advertise, you can direct mail, which is very expensive and your return is very small decimal percentages on direct mail. I don’t necessarily recommend that. There are people who do it very successfully but they’re real experts at it. There are courses that teach you direct mail. I wouldn’t just try it myself, see if it will work. So those are some of the ways to find notes, again in my e-course we talk about that.

Speaking of courses, I did want to point out that we’re having out annual boutique seminar, coming up in San Antonio, Texas, on June 21 and 22, and it’s Tom Henderson who is very well known in the note business. He’s been doing notes for much longer than I have, and he is called the note professor, and Tom’s course is called The Complete Live Course on Acquiring Wealth with Seller Financing and Notes.

You go to and you can check it out. See what Tom’s going to teach. One thing he’s going to teach is how to get %18 yield safely and he’s been doing it for years. The course is $695, it’s two days, Friday and Saturday, June 21, 22, but we have a coupon code for your audience.

Brecht Palombo:              Wonderful.

Bill Mencarow:                  If anyone goes to and signs up for Tom’s course they’ll get $100 off if they use the coupon code “distressedpro”.

Brecht Palombo:              I appreciate that. Thank you for doing that.

Bill Mencarow:                  Oh, absolutely happy to do that.

Brecht Palombo:              We’ll make sure we get this out in time so folks can get there. So I guess we’re coming up on time here, but if you could just touch on, you know there’s a lot of things happening out there right now. I’m not expecting you to have a crystal ball, but the future of note investing, is this something you think that is going to be available to investors for a while? Is this something that’s a sustainable thing that people can get involved in today and they’ll have it. It’ll be something they can do for the next decade? Or what do you see happening in

Bill Mencarow:                  Well I think… No doubt. I mean I’ve seen different cycles. You know, sometimes it’s better than other times. You know, we just touched on it. Don’t necessarily think about single-family houses. Sometimes with low-interest rates, an environment which we’ve had for a long time, we don’t have as many seller finance notes available, but that’s only true with single-family houses.

If you look at other types of real estate transactions, farmland, commercial property transactions, businesses. Sales of businesses are almost always seller finances and there are buyers for business notes, and we can put you in touch with those buyers if you want to be a broker for those buyers. Or if you want to learn how to invest in other kinds of collateral that’s secured by notes, or rather notes secured by other types of collateral. We can teach you about that.

So yeah, there’s a tremendous thing. A tremendous opportunity. I will say, I know we’ve only got a minute or two. Let’s go back to the $10,000 note if we could. I said you buy it for $8,000, you sell some of the payments for $8,000, then you get the back end of these payments, or the last, whatever, 37 payments. Yeah 37 payments of 120 a month. Well what if you had bought that note and you

Roth IRA? I was thinking about this not too long ago, and I contacted two CPAs, mine and he contacted another to make sure he was right. I said, “Wouldn’t your Roth keep those back end payments that cost you nothing? Wouldn’t the distributions be tax-free?” And they both said, “That’s correct.” Those distributions would be tax-free to you. If you held them outside your Roth, you have to pay tax on those payments. But inside the Roth, when you take them as a distribution, they come out as tax-free.

So can you imagine stuffing your Roth IRA with a bunch of those notes and having those back ends start flowing in and you take the distributions tax free?

Brecht Palombo:              Yup. Yeah. That’s exciting stuff, and that is the kind of stuff that folks learn at this seminar that you’ve got coming up?

Bill Mencarow:                  Yes sir. Yep.

Brecht Palombo:              Wonderful.

Bill Mencarow:                  June 21 and 22 in San Antonio. Just go to and you can read all about it and be sure to use the coupon code distressed pro and get $100 off the already low price. This is not like $10,000 seminar, this is like $700, the price is going to go to $795, still, it’s a bargain, but you’ll still get $100 off even then.

Brecht Palombo:              Wow. Really appreciate that. That is a bargain. So if you’re listening to this, you’re interested in investing in notes, you should go to and get involved in this June… June 21st is it?

Bill Mencarow:                  That’s correct. 21st to the 22nd.

Brecht Palombo:              June 21st.

Bill Mencarow:                  In San Antonio.

Brecht Palombo:              And learn how to do it, and we’re going to save you 100 bucks when you use the code distressed pro, already a steal, at $695. Bill, I really appreciate you coming on here. I appreciate all the work that you do there and all the information that you put out. It’s one of the first things I recommend to folks, is your website and your newsletter when folks are just starting to dip there toe in here and trying to figure out what they should do. It’s a wealth of information in the note business.

Bill Mencarow:                  Well Brecht, it’s been an honor and I appreciate you guys. is a tremendous resource and I hope people take advantage of everything you offer because I think it’s just a great service to investors. It really is. So congratulations to you for that as well.

Brecht Palombo:              Thank you very much for that. So that’s it. Thanks for being here. Everybody go to if you want to get involved in that June 21st, 2019 seminar, and use the code distressed pro to get 100 bucks off.

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