Spencer - I believe we exchanged emails a while back but I've since started my own company and lost your email shoot me a PM with your address so we can talk further
For anyone who wants to get into distressed debt investing (secured by real estate) it takes an awful lot of education, but it's totally possible even if you work 9-5. This is not a "no money down" game and requires some specialized knowledge.
This thread started with a question about cash flow which requires a different perspective on note buying. In most circumstances an investor is buying non performing debt (borrower defaulted and is no longer making payments) with the intention of controlling the asset through the foreclosure process or orchestrating a deed in lieu of foreclosure with the borrower.
Assuming you bought the note at a steep discount, you are effectively 'creating equity' which allows you 2 relatively easy exists - there are many more but these are fairly straight forward but by no means easy.
1. Foreclose, get the trustees deed upon sale and flip the collateral (at the risk of losing the audience here, you as the note holder are like the bank - you control the bid price at auction so you can have the opening bid be $20,000 above what you paid for the note and if even one person bids you're 1st trust deed is paid off and you make $20k).
2. Rewrite the paper to make it performing. If the borrower couldn't make a $2,000 payment, can they afford $1,000? If the numbers make sense and you reach a deal with the borrower you can sit back and collect the check each month or sell the note since now it's performing.
How do you find non-performing notes?
-Build relationships with bankers in the special assets department or secondary marketing group of financial institutions. It's easier to work with regional banks because B of A, Chase, Citi are so big and bureaucratic you'll spend days just trying to speak with the decision maker and soon you'll realize it's highly unlikely you ever will
-Build relationships with money guys if you're not using your own capital
Keep in mind you can buy 1st trust deed notes through out the united states for relatively small sums of money - you'd be amazed to see investors controlling real estate through the note acquisition process for $20, 30, 40k; no, you won't be buying in Orange County but the point is this business can be done with out ever seeing the property once you know what you're doing.
The opportunity to buy non performing residential notes will always be around it just so happens now is the best time investors have seen in ages. There are $13 trillion in residential mortgages in the United States so that means plenty of inventory
A ton of commercial paper is coming due (loans maturing) in 2011, 2012, and 2013 - the commercial market will crumble much like residential did with defaulted mortgages so if you get your feet wet in residential and develop the right relationships, you can be poised to take on the commercial market next year.