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Episode Info: l to find a good, solid deal you know will make your investors happy. If you have a really narrow focus, you might find yourself out of deals. You need to explore different note deals (1sts, 2nds, contract for deeds — performing, non-performing), different markets (judicial really isn’t so bad if you have patient investors and holding costs built into your model), different real estate deals (you end up with an REO from time to time so how about starting with one? You usually note yourself into a deal — how about noting yourself OUT this time?) or different asset classes (have you checked out commercial?). You can also try finding new deal sources (if you’ve always bought from hedge funds, have you tried calling banks? Current investors? Looked online?). When deal flow changes, you have to change with it or it won’t be pretty. Another inflexibility we see amongst note investors is a hard focus on purchase price. Don’t get me wrong — you’ve gotta know your numbers. But you have to make sure you are hard and fast on the RIGHT numbers and flexible on the others. I confess — this was a big one for us. First, the prices some sellers are looking for — and unfortunately, some of the newer investors are willing to pay — have gotten crazy. There’s not enough room in a note deal to pay almost 80% of value because you really have no idea what the inside of that house is going to look like. You need that buffer. But how do you find your absolute highest % of value you’ll pay? Well, it’s not like I did at one point and pull it out of the air. “I absolutely, positively will not pay over X% of value!” Is a statement that can get you stuck. Because ultimately its not about price. It's about your ROI. Let’s say your seller counters at 60% of value. If you have decided that 60% is just nuts — with a few rounds of “that seller is out of his freaking mind!” — you may be walking away from a good deal. Did you run your counter through your ROI calculator? Is your return still at or above your target return? Then why would you walk away? No one wants to overpay obviously but prices are what they are. Deal flow is what it is. You pay what you have to pay to get the results you need. What’s your alternative? Sit around waiting for lower prices while your investors put their money in other deals? Do that for too long and you’ll be out of a job. Taking that a step further, what if that new price lowers your expected ROI to just under your usual target. I’m talking 2% off, maybe 5% off — not cutting it in half. Do you immediately say no? Or do you take a beat before you decide? This has been an issue Chase and I have dealt with frequently. If I’m going 50/50 with my funding partner, an ROI of 20% is hard to sell, especially as a one off and especially to investors in this room. But if keep turning down all of my counters, I lose credibility with both note sellers and my investors. I need both to keep coming to me, not looking around this room for other investors who might be able to close. That means I have to consider changing the deal split. If I take less so that my investor gets a great return and then brings me more money, have I really lost anything? In this 20% example, say I go 14/6. My seller is happy. My investor is happy. And it’s not like I’m out on the street. I’ve just made an investment in both relationships and still got paid a return on funds I didn’t even have in the deal. Note investing is a numbers game so if my return on 1 or 2 deals out of 20 dips a bit but my business overall is stronger, it’s a definite win. Honorable mentions -- vetting, education Vetting Not vetting your investment partners. This holds true for both the active and the passive side of the transaction. I know you want the money for your next deal but do you really know the person you are taking it from? I’m not talking about the investor questionnaire and the 5 touches you need to do to keep the SEC happy, although those are obviously important. I’m talking about what it’s going to be like to have this particular personality in a deal with you. Are they going to call every day to see what’s up? Will they respect your knowledge and experience when it’s decision time or will there be a lot of second guessing and repetitive questions? Likewise, are they going to be so hands off that you can’t get a hold of them to make sure you are both on the same page? If this person seems annoying before funding, they aren’t going to get much better after funding. Obviously, you won’t become BFFs with every investor but the reality is, a bad investor can make even the most profitable deal torture. Hard as it is to imagine, you could actually turn someones money down. On the flip side, for our more passive investors and the newbies who want to learn by partnering on their first deal, what kind of vetting are you doing on the guy you are giving your money to? Charisma won’t keep your money safe. Excitement and energy are not synonyms for effectiveness or focus or even character. A wonderfully detailed story about how a great a deal went could be just that — a fantastic story. Could have been someone else’s deal or it might be total fiction. Your due diligence cannot stop at the deal itself. The best ways to vet your asset manager finding someone who has actually done a deal with this person and see how it went. Go online and look for reviews. They are harder to find than reviews for an Instapot but they are there. Start by searching Google with the term “I invested with” and his or her name and see what pops up. You can do the same on Bigger Pockets. You can also pick the largest counties in the state the investor lives in and see if any liens or judgements have been filed. In general, we do more research before purchasing a television set than we do before handing over our savings. Don’t let that be you! Education — While note investing is a lot harder than some people make it sound, you probably could learn it all by yourself. Lots of us write books and articles, maintain a blog, record a few videos — put out a lot of content that could help someone start from scratch. But that takes an incredible amount of time and energy. And it’s isolating — you don’t meet anyone who is learning alongside you compare notes and bounce ideas off of. Wouldn’t it be much easier to dive into a formal note education and speed up your learning curve? Yes, it will cost you but so will taking a bath on deals you bought before you knew better. And your network? With many programs, your access to other investors explodes and you can watch, listen and learn from so many more people faster than you ever imagined. And there are many options out there — choose the one that fits your learning style and pocketbook best. Time really is money so if you shorten the learning curve, you’re investing sooner and better than the rest. #1 Not acting like you are running a real business While some people are operations and systems focused and others find that painful, you really do need to have a system in place to manage your note investments. There is a lot of detail and paperwork in every deal and if you can’t keep on top of it, you’re going to lose money. In the beginning, your workouts will simply take longer because you won’t have the information you need on hand to make decisions quickly. As you progress, you’re going to miss nuances in the data that you can use to make sure you don’t leave money on the table. Of course, your systems are going to evolve over time. The spreadsheet you use for your first 2 notes is going to look a lot different than the software you are using by your 100th deal. But you have to keep the business part of your note business in mind as you grow to avoid chaos. Because as you add another deal here, 2 more there, maybe another 5 a little while later, you feel the need to keep it all organized looming. Are you going to manage that need thoughtfully as you go along or are you going to keep putting it out of your mind until it blows up and all your deals are in limbo for a bit while you try to dig yourself out of the chaos? This also applies to processes. Some elements of the note business are pretty repetitive. Reviewing a collateral file. Boarding a loan. Vetting an investor. Adding force placed insurance. All important tasks but things you eventually could do in your sleep. And what happens with repetitive tasks after a while? We get sloppy. We get busy and don’t focus like we should. And then we miss things. What if you documented the process and then followed a checklist every time? If you’ve got 10 things to check off while reviewing a file, are you just going to ignore step 6? And what about when you finally hire an assistant? Training — and trust — are tough. How much easier will it be on you if you can look over their completed checklist to see that they covered it all? A thoughtful management system — with appropriate checks and balances — will help you function as a real business and not just a hobby. Aol email addresses Not putting your face on LinkedIn Using FB for business but having your cat as your profile picture Not managing your relationships.........
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