The most frequently asked question I get asked when I am meeting with a potential investor is “How did you learn about note investing?”
For a few brief seconds, I think about making a joke such as “I was born with my note knowledge” or “my parents read me books about note investing after I brushed my teeth each night before bed.”
The truth is that like most things, it has taken me a lot of time, energy and focus to get where I am today as a note investor and fund manager. Typically, the first question I ask myself before giving some area my full focus, “Is this a game worth playing?” Put another way, will this opportunity be worth all the blood, sweat and tears that I put into this area of my life for the next X years.
The answer was a resounding “YES” when I thought about the opportunity that exists for at least the next 3-5 years in mortgage note investing. The opportunity in mortgage note investing closely mirrors the Savings and Loan crisis in the 1980′s and 1990′s, which you can read more about here:
http://en.wikipedia.org/wiki/Savings_and_loan_crisis
I studied Finance at Goizueta Business School at Emory University and began my career as a Financial Advisor with Axa Advisors in Bala Cynwynd, PA. Investing and numbers always fascinated me, in fact I clearly remember being interviewed before I got accepted to Bachelor of Business Administration program in which I was asked, “Why I wanted to study finance at business school,” my answer was straight to the point, “so I can effectively manage my money and the money of other people.”
After passing all of my licensing exams (Series 7, Series 66, PA Life and Health) while still a senior in college, I quickly learned that 90+% of training for financial advisors is spent selling and learning to sell, rather than effectively managing clients money. Becoming disillusioned with the system of what options there were for my clients, I swear that which mutual fund brought in pizza had no impact on my advice to clients, moved to California to begin my career at the intersection of real estate investing and marketing. These two skills of marketing as well as real estate investing, continue to pay off after a decade of focus and dedication to mastering the crafts.
While helping my friend Brandon build www.NewCondosOnline.com into the largest website for condominium listings online, the mid 2000′s were an exciting time as we were helping our developer clients transition from paper advertising to online advertising. Building relationships with developers across the country as well as international, I quickly learned more about real estate finance than I ever imagined.
After getting my California real estate license, Brandon gave me his blessings to launch NCO Capital, a division of NewCondosOnline.com, to help developers sell remaining condo units in bulk to real estate investment companies. I created a team to facilitate transactions between real estate developers and investment groups with cash ready to deploy for the right investments. When the recession hit around late 2007, early 2008, we were well positioned to find great deals for investors and help developers unload their remaining units so they could service their debt payments on their construction projects.
One of my favorite days was marching into Jorge Perez’s office and explaining to him why our investors needed a 40% discount off his current listing price for his Miami projects. Let’s just say the meeting with Mr. Perez and his COO Matt did not last long, but that is a story for another day. You can read more about Jorge M. Perez here:
http://en.wikipedia.org/wiki/Jorge_M._P%C3%A9rez
My first real estate investment was a mortgage note investment on an 18-unit apartment complex in Memphis, TN. I was curious about note investing since I thought the money in real estate was in the real estate, I have since learned that the banking business can be even more profitable than the real estate business and best is a combination of real estate and banking. Along with two partners, we gave a local real estate investor $250,000 to acquire, fix up and rent the apartment building, giving us a mortgage note for the deal paying us a three part profit strategy: monthly interest, net income split as well as split of upside sales price over the $250,000.
I truly got the power of note investing, when I see an email from my servicing company to notify me of a monthly payment being deposited into my bank account without having to worry about tenants, toilets and so much more that comes along with managing actual properties.
My second real estate investment was with the same partners in deal #1, we bought a 4-unit condo complex in Anaheim, CA around the corner from Disney Land. We knew the broker who worked for the bank to help sell this foreclosed property as the previous owner was not able to make his mortgage payments. We bought the deal for all cash of $330,000. We did the property management for 12 months ourselves before brining in an outside management company to understand the business and oversee the repairs. My favorite call we ever got from a tenant is when one tenant accused another tenant of stealing his lap top. I guess I should add ‘babysitter’ to role of property management. We just got this property appraised last month for $740,000 as we bought the deal right and appreciation has been quite nice in California over last couple years.
After moving back to Philadelphia area after 8 years in California to be closer to my family as my mother dealt with breast cancer for the second time, I was pondering what to do next with my career after selling my interests in my marketing businesses. I was fascinated with real estate and taking my real estate investing business to the next level, so I went to local Sheriff sales around the Philadelphia area in the surrounding counties. I initially thought I would buy a property near Temple University, fix it up and flip it for a nice profit.
I quickly realized that less than 5% of properties actually get sold at Sheriff sale, most of these bank properties go to the “Attorney on writ.” I did not know what that meant, but leaned over to the gentleman sitting next to me at Sheriff sale in Norristown, PA and he briefly explained this is when the bank does not sell property at Sheriff sale, maybe because upset price (minimum price) has not been met or maybe the bank prefers to sell the note rather than the property. In simple terms, the bank sells the debt, rather than foreclosing to sell the actual property.
After about 6 months of researching how to buy notes from banks rather than the actual properties, my note investing business was launched. I traveled the country (California, Dallas 2x, Boston, New York 7x, Las Vegas) to meet people in person as well as take people to lunch locally and phone conference calls. My journey to this point has not been simple or easy, but without a doubt, it has proven to be a GAME WORTH PLAYING.
Thanks For Reading,
Jeffrey
P.S. Look forward to hearing your thoughts about how you learned about investing….