Due Diligence Steps in Notes Investing

Due Diligence Steps in Notes Investing


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Due Diligence Steps in Notes Investing


You make your money on the buynot on the sell. Like location, location, location, this common real estate adage holds true just as much with self-storage investing as it does with real estate note investing. How do you make money on the buy? By taking several due diligence steps in notes investing.

According to Ultimate Guide to Note Investing Due Diligence, “When performing note investing due diligence, you want to set yourself up for the greatest potential profits at your exit.

Due Diligence Steps in Notes Investing

For that reason, a large portion of due diligence comes down to eliminating potential risks and mitigating those risks that you cannot eliminate in an investment.

The note investing due diligence process can feel like a daunting task when first looking at performing all the steps.  The first step is to break up your due diligence into two (2) phases, known as initial due diligence and secondary due diligence.

During initial due diligence, you want to perform a high-level review of the note you are looking to purchase, with the intent of focusing on only the best notes and underlying collateral.  Only after your initial bid is accepted by the note seller will you begin to perform your secondary due diligence, which is much more granular.

Basic steps of initial due diligence include:

  • First, strip out any of the states you want to exclude.
  • Second, filter out any of the cities that don’t pass your criteria (e.g., low population, high vacancy rate, negative growth rate).
  • Third, strip out any of the properties that do not meet your minimum criteria (e.g., built before 1950, less than three beds).
  • Fourth, strip out any notes that don’t meet your overall strategy (e.g., payment history, UPB).
  • Fifth, perform any additional due diligence steps based on your comfort level.

The Secondary Due diligence Phase

During the secondary due diligence phase, you are going to verify additional data points and confirm prior facts and potential assumptions that you made during the initial due diligence phase.

In the secondary stage of note investing due diligence, you will perform all of the detailed, thorough note analysis. Your secondary due diligence should either confirm the initial bid price that you made or give you pause to consider lowering your initial bid. More often than not, you will uncover aspects of the prospective note you are looking to purchase that will warrant diminishing your initial bid.

Fading your initial bid is due to a collateral review or Owner & Encumbrance (O&E) Report review, which are not performed during initial due diligence.  Which is why the secondary due diligence phase is so essential when purchasing real estate backed note.

Due Diligence Resources

You can find some of the websites and resources that you can use to perform your due diligence at NoteVestment

Paige Panzarello, the “Cashflow Chick,” Founder of The Tryllion Group, Investor/Entrepreneur having done $150 Million+ in real estate transactions; Specializing in Non-Performing Notes. She has been a regularly featured guest on “The Cashflow Guys” podcast, and you can also find her on many other Real Estate and Entrepreneurial podcasts, and in the Wall Street Journal as well.  She also speaks at various Real Estate Investing clubs and conferences across the country. Paige teaches the “Building Wealth with Notes” Workshop that drills down into the details of how to successfully buy Non-Performing Notes, create passive income, and mitigate risk. www.CashflowChick.com/training

Surviving the crash of 2007, Paige knows how “life happens” every day. Her passion is to help people build wealth, secure their financial future, to enjoy life, and to be ready-not broken! Whether it is improving communities one house at a time, helping borrowers stay in their homes, or working with other investors to learn a new way to earn higher investment dollars for their retirement years potentially, Paige dedicates herself and her business to helping people improve their lives in every way.  For more information got to www.CashflowChick.com

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