Many investors who want to get involved in private note investments have a hard time finding the right education and more importantly the right approach to Private Mortgage (also called Deed of Trust) investments. As the name indicates the Active investor/ lender role is one that involves much more education, time commitment, knowledge and experience to be successful, the other, a Passive investor/ lender simply means you find the professionals doing those active roles, and make them part of your team.

During the next couple of slides, I will go over how this saying is true, and depending on which side you play on, you will benefit from. In this first slide, we have a lender with $150K and a borrower with $150K. The borrower wants to use leverage, ie the lender’s capital to help him buy this property. The As-Is value is $210K, so the borrower does not have enough, but he does have 30% to put down towards the loan. The lender is willing to give a $147K loan @8% annually, amortized over 15 yrs. The PI payment is $1,405 per month, the borrower will have to pay for taxes and insurance themself. The borrower has to put down $63K but still has $87K remaining.

The term GAP Funding is often associated with high returns, quick turnaround, and fast profits for the lender. The issue is that most new lenders are not aware of what exactly GAP Funding is, and if they are speaking with their borrowers to educate them, then they are allowing the fox into the hen house and taking the fox’s advice on how to secure the hen house against… foxes. In this video I advocate against newer private lenders participating in this type of loan, as well I offer some measures that they can take to shore up their risk and shift more of it to the borrower.

When an investor decides to invest in private notes secured to real estate that has to have the time to market and then process the loan requests. They have to have the time to underwrite each file. Then if the investor decides to fund the loan, and create a note they must have the time, every month to service the loan. Servicing includes more than collecting interest payments. This includes preparing 1099-INT’s, 1098-INT’s, and keeping meticulous accounting of the loan to ensure its performing.

Whether you have opened a Self Directed Individual Retirement Account “SDIRA” or you have opened a Solo 401K for your business, or you are leveraging a high cash value IUL or even a LOC or HELOC, you will quickly understand that investing in notes can be rewarding. Yet, many of these alternative investment vehicle custodians and salespeople cannot legally teach how to invest much less understand the differences in the note investing space. In this video I want to briefly cover the most under-addressed aspect of note investing and that’s the borrower type.

How does the market affect your note investing? This is probably the greatest concern for private lenders. The “market” is often referred to as the housing market, and sometimes referred to as the economy. of course, we can’t look past the government’s influence on the market, so I wanted to discuss how the government can affect when you decide to invest in notes.