Investing in Note funds

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highercall
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Investing in Note funds

Post by highercall » Thu Mar 09, 2017 8:37 pm

Anybody have any experience with investing in note funds? It's offering a 10% return with a 3 year term? Company invests in first, second and nonperforming notes. You must be an accredited investor. Interest is paid monthly.

aristotelian
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Re: Investing in Note funds

Post by aristotelian » Thu Mar 09, 2017 9:21 pm

Never heard of it. Do you have a link?

MN Finance
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Re: Investing in Note funds

Post by MN Finance » Thu Mar 09, 2017 9:27 pm

Do you have an actual question?

I can imagine the responses you'll get are mixed, but after 08 with current market prices and rising rates, certainly not for the faint of heart.

Silk McCue
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Re: Investing in Note funds

Post by Silk McCue » Thu Mar 09, 2017 9:29 pm

A quick search yielded this "interesting" article.

https://papersourceonline.com/dirty-lit ... ing-notes/

Topic Author
highercall
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Re: Investing in Note funds

Post by highercall » Thu Mar 09, 2017 9:58 pm

aristotelian wrote:Never heard of it. Do you have a link?
pprnoteco.com

Valuethinker
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Re: Investing in Note funds

Post by Valuethinker » Fri Mar 10, 2017 5:57 am

highercall wrote:Anybody have any experience with investing in note funds? It's offering a 10% return with a 3 year term? Company invests in first, second and nonperforming notes. You must be an accredited investor. Interest is paid monthly.
Don't. At least only what you can afford to lose.

Recessions come every 7 years on average. Lots of signs corporate credit quality is beginning to decline, and of trouble in individual credit-- ponzi borrowing i.e. borrowing to repay previous debts (in Hyman Minsky's terminology).

People will get hurt.

If they are guaranteeing 10% return, that's more than a junk bond or a sub investment grade Emerging Market debt. They are doing something to juice yield, and that can only be achieved with higher risk.

(PS in case it's not obvious I have not looked at these things. I am reasoning from first principles. They are either leveraging your capital to get this return, or lending to truly high risks.

A genuine distressed debt fund might be interesting, but it's a specialist area, and I imagine you'd need access to very good hedge funds that specialize in this area, and they usually have minimum investments like $500k or $1m, I believe).

Valuethinker
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Re: Investing in Note funds

Post by Valuethinker » Fri Mar 10, 2017 6:06 am

Silk McCue wrote:A quick search yielded this "interesting" article.

https://papersourceonline.com/dirty-lit ... ing-notes/
Good article. Thank you!

Risk capital, indeed.

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Re: Investing in Note funds

Post by oldcomputerguy » Fri Mar 10, 2017 7:17 am

Valuethinker wrote: Don't. At least only what you can afford to lose.
+1. This stinks.
If they are guaranteeing 10% return, that's more than a junk bond or a sub investment grade Emerging Market debt. They are doing something to juice yield, and that can only be achieved with higher risk.
They are not guaranteeing anything. Their FAQ states:
Q: Is this return guaranteed?
A: Although we have never failed to pay the promised preferred return, past results do not guarantee future fund performance.
Looking through their FAQ, it looks to my layman's eyes that they're taking their investors' money, buying mortgages, and either flipping or foreclosing them. The "profits" are then distributed once a year.

If you want out, tough:
Q: Can I take get my money back before the 3-year maturity date?
A: No, but fund investors have an indirect form of liquidity if they choose to redeem shares to purchase notes (upon availability), which may then be liquidated.

Q: Are the shares “liquid” in the fund?
A: Investors have the opportunity to redeem shares from their fund investment at anytime during their term to purchase notes from our Note Vault or weekly E-zine.
And note that they only will take "accredited investors". Investopedia defines "accredited investor" as
a person or entity that can deal with securities not registered with financial authorities by satisfying one of the requirements regarding income, net worth, asset size, governance status or professional experience. The term is used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings.
(my boldface)

If you really want to invest in real estate, there are better ways.
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Topic Author
highercall
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Re: Investing in Note funds

Post by highercall » Fri Mar 10, 2017 8:36 am

What I understand from talking with this firm, they buy packaged or large volume of notes from lenders and other sources at discounted rates. They either keep or resell the performing notes and try to reestablish the nonperforming notes and do the same with them. I understand it is potentially higher risk, however, like someone else said all markets go through cycles and have the potential for large losses.

Being that the stock and bond markets have been on the rise for many years, (I know the Bogelhead philosophy is to invest at all times) and ride the ups and downs. I ran across this investment and appreciate your thoughts. It appears that all who have replied would think this investment is at a much higher risk than keeping with an asset allocation of stocks and bonds.

That's what makes this forum so great. We can all share and learn from others. Thanks.

wolf359
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Re: Investing in Note funds

Post by wolf359 » Tue May 09, 2017 10:08 am

highercall wrote:Anybody have any experience with investing in note funds? It's offering a 10% return with a 3 year term? Company invests in first, second and nonperforming notes. You must be an accredited investor. Interest is paid monthly.
I've been checking these pprnoteco.com as well.

Are you an accredited investor? Have you participated in any investments that are limited to accredited investors? What is your due diligence process to ensure that you are not being ripped off? If you have a process, I'd love it if you shared it.

I started a process to check this company out. The man behind it is Dave Van Horn. He has been active in and has a fairly good reputation at BiggerPockets.com, a real estate forum. You may want to read some of his writings and do research on him there. I'll dump some additional details as I have time.

PPR has three note funds, of varying risk. They pay out monthly, amounts of 10%, 11-12%, and 12%. They are non-traded, and lock you in for 3 years. They are limited to accredited investors, and are registered with the SEC as such. The way it works is that you link a bank account to them, transfer the funds (minimum $10,000), and they transfer monthly payments back. After 3 years, they return the balance. If you do this, set up a segregated account for this purpose. I believe it is like a bond -- the payments are probably taxable as regular income. The underlying investment is a mortgage, which is effectively a bond.

They don't do IRAs directly. They tell you to get a self-directed IRA and have that account pay them. That will resolve the tax issue.

Their underlying business is to buy distressed mortgages and get them to perform again. They have a stated value of keeping homeowners in their homes if they have a desire and means to pay, and will renegotiate mortgages and payment schedules to do so. They do appear to be actively pursuing the business model, and are all over the public records of court systems around the country. In other words, there is a legitimate business behind the fund.

Alternatively, you could also buy distressed notes directly. PPR offers a class to teach you how, and provides a source. This is either very passive by buying a performing note, or very active by buying a non-performing note and getting the borrower to pay. To make that model work would probably require you go into the note business as well. If a note fails, at least the loan is backed by collateral which can be foreclosed. One thing I like about this model -- a real estate collapse is probably good for this business. It provides more opportunities. When few mortgages are failing, notes will command high prices.

Since Van Horn has been in the business successfully for so long, the note fund will probably pay you back. The business itself is diversified in many notes. The single payer risk is that everything is being held by one person or company (PPR), which you would have to trust not to walk off with the money one day. Bernie Madoff has ruined the investment business for everyone, because he demonstrated how even someone with a stellar reputation and long track record could really be running a scam. In this case, I see no indications, but I am not experienced in due diligence of this nature. Since this falls under accredited investor rules, it is buyer beware. The SEC considers you to be experienced enough to make your own decisions. If you don't do your homework and you lose your money, that is your own fault.

I am interested in learning more, but I'm cautious. This is a side of the investing world I've never really seen before.

wolf359
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Re: Investing in Note funds

Post by wolf359 » Tue May 09, 2017 10:37 am

Valuethinker wrote:
Silk McCue wrote:A quick search yielded this "interesting" article.

https://papersourceonline.com/dirty-lit ... ing-notes/
Good article. Thank you!

Risk capital, indeed.
The interesting thing about this is that papersourceonline sells note training to those same individual investors. The point they're making with this blog post is that this is not an easy business to go into as an individual. It's definitely buyer beware.

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highercall
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Re: Investing in Note funds

Post by highercall » Tue May 16, 2017 3:00 pm

Good review wolf 359, I heard about them also from biggerpockets. I spoke to one of their investor rep. today and posed various concerns. Such as pyramid scheme, collateral ( which is backed by real estate, however you would have to go through foreclosure), ect. He did say that some start with the minimum of $10,000 to get comfortable with the company. They actual are paying $12% on their current fund that is open for new money. Fund closes when they raise $15 million. They have a Q&A call on May 17th at 8:00pm EST that I signed up for. I have search the internet and have not found anything negative about the company. Just considering a possibility of diversifying a small portion of my investments to create additional cash flow.

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Re: Investing in Note funds

Post by Valuethinker » Tue May 16, 2017 4:35 pm

highercall wrote:Good review wolf 359, I heard about them also from biggerpockets. I spoke to one of their investor rep. today and posed various concerns. Such as pyramid scheme, collateral ( which is backed by real estate, however you would have to go through foreclosure), ect. He did say that some start with the minimum of $10,000 to get comfortable with the company. They actual are paying $12% on their current fund that is open for new money. Fund closes when they raise $15 million. They have a Q&A call on May 17th at 8:00pm EST that I signed up for. I have search the internet and have not found anything negative about the company. Just considering a possibility of diversifying a small portion of my investments to create additional cash flow.
This leaves 45 notes from a package of 1,000 that three professional investment funds, doing intensive analysis by highly trained MBAs, have determined cannot yield even a minimal investment return.

These are then offered to the individual investor, who according to those in the industry “with something to sell” (the leftover NPNs and/or “training”) can profit enormously by (1) making them re-performing notes or (2) foreclosing and selling the property for large profits.

The pitch from those “with something to sell” is twofold: (1) “There is plenty of meat left on the bone” (actual quote), and (2) if you send the borrower a complete package of all docs, weighing, say, five pounds you will “shock and awe” him into paying on the note.

I highly doubt either of these claims have even a micron of validity.

The parties with a financial interest in you buying into this will cite isolated instances of great success, never mentioning the all-more-frequent instances of total failure.

So at the end of the day the training promoters have collected up to $30,000 per person for their NPN “mentoring”/”coaching” program, the retail asset disposer has made 50% to 100% profit on their inventory, private middlemen have turned a $2,500 investment in a note into $16,000, and my sister-in-law who purchased 5 NPNs over three years ago and has spent large amounts on attorneys, taxes, and brokers has yet to see a penny in return.

To paraphrase, if you don’t know who the sucker is in any ultra-high profit promise situation, it’s you.
From the article cited above.

This may not be a Madoff (although Madoff used exactly this technique of "a little to get comfortable" to suck people in, big time-- see also the film "Boiler Room") but it smells of awful risk to me.

If you put some money in, and do well, make sure you don't then put a *lot* of money in. More than you can afford to write off, totally.

I wouldn't put this in a tax protected account, because if it goes wrong, I'd want the tax writeoff.

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Re: Investing in Note funds

Post by MaggiePang » Wed Nov 06, 2019 2:43 pm

So did you end up investing in the PPR note fund? It was brought into my attention by a friend who is an experienced real estate investor. She said she had been investing with them for "several years", and PPR had never missed the monthly payment or the principal withdraw when the investment term ended.

I am thinking of investing with them now. They had dropped their return rate from 12% to 10% on their 36-month fund. 10% is still a really good return. I own a few rental properties in California. Under the current market (with price pretty high), it's impossible to get 10% return on rentals. I also flip properties. Each project can earn 10+% APR return, however flipping cannot get the fund 100% operating at all times. There is idling period which hurts overall return. I've enjoyed a nice rally on stock market via S&P index. But at all time high, I doubt the S&P can maintain a 10% increase year after year. So 10% cash on cash is really hard to beat. The only concern is that is this Note Fund a ponzi scheme? In which case I would lose the principal...

scopeviper
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Re: Investing in Note funds

Post by scopeviper » Sat Apr 11, 2020 12:25 am

I'm curious if anyone has invested in one of the PPR Note Funds. I have been trying to get more information regarding the fund holdings, but have not been able to obtain any details. A recent conference call indicated that vacant real estate made up over a third of the portfolio which was a bit surprising. Any experiences positive or negative would be appreciated.

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highercall
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Re: Investing in Note funds

Post by highercall » Thu May 21, 2020 4:05 pm

My 3yr note fund with them is maturing next month. They have paid the monthly interest as stated. I also have a 3yr fund at 10% with them but letting the interest accrue. They also offer 6 month 6% and 1 yr at 8%. (min 25K) for those funds and 50K min for the three yr fund. And yes you have to be an accredited investor. So far my experience has been good. I did meet Dave (founder) at a seminar several months ago and seemed legit. You never know but that's with many investments.
Last edited by highercall on Sat May 23, 2020 2:31 pm, edited 3 times in total.

annu
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Re: Investing in Note funds

Post by annu » Thu May 21, 2020 11:20 pm

Why not reits? They are proven and especially vnq or vnqi from vanguard or frel from fidelity are pretty decent. Returns as far as dividends go are pretty high as well.

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Re: Investing in Note funds

Post by Grt2bOutdoors » Thu May 21, 2020 11:51 pm

annu wrote:
Thu May 21, 2020 11:20 pm
Why not reits? They are proven and especially vnq or vnqi from vanguard or frel from fidelity are pretty decent. Returns as far as dividends go are pretty high as well.
You mean the same reits holding investments where the underlying tenants have stopped paying the rent? What could go wrong right? :oops:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Investing in Note funds

Post by annu » Fri May 22, 2020 1:25 am

Grt2bOutdoors wrote:
Thu May 21, 2020 11:51 pm
annu wrote:
Thu May 21, 2020 11:20 pm
Why not reits? They are proven and especially vnq or vnqi from vanguard or frel from fidelity are pretty decent. Returns as far as dividends go are pretty high as well.
You mean the same reits holding investments where the underlying tenants have stopped paying the rent? What could go wrong right? :oops:
Yes, but it is publically traded, more liquid, unlike notes, where you go with "trust" and "gut" and have to be accredited investor.
If someone is gonna burn my money, I will atleast like see it burn :D

So only comparing notes to reits here...

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Re: Investing in Note funds

Post by nisiprius » Fri May 22, 2020 6:32 am

Valuethinker wrote:
Fri Mar 10, 2017 5:57 am
...A genuine distressed debt fund might be interesting, but it's a specialist area, and I imagine you'd need access to very good hedge funds that specialize in this area, and they usually have minimum investments like $500k or $1m, I believe)...
1) "Interesting" how the term "non-performing notes" becomes shortened to "notes." Reminds me of "distressed debt" becoming "credit."

2) There actually was a plain old mutual fund that I think was available to ordinary retail investors, that was a distressed debt fund. It was the only mutual fund I know of to actually blow up in the time I've been paying attention, giving a black eye not only to the firm, but IMHO to the mutual fund industry itself: Third Avenue Focused Credit, in 2015. "Had Third Avenue allowed redemptions to continue, a few large investors could have gotten their money back via the sale of the remaining liquid investments, leaving everyone else stuck."

The firm was always described in the financial press in the most glowing terms, perfectly respectable. The founder, Marty Whitman, was often described in terms like "legendary deep-value investor." His, like Bill Miller's, was often cited as "proof" that skill existed, there was no way he could be obtaining the results he got if he weren't a legitimate genius with special insight. He's actually been mentioned in terms like that in the forum. It was also mentioned that
In Third Avenue Fund’s October 2013 annual report to shareholders, Chairman Marty Whitman severely criticized the research of recent Nobel Prize-winner Eugene Fama, calling it “utter nonsense, sloppy science, plain stupid, and unscholarly.”
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

vijaym73
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Re: Investing in Note funds

Post by vijaym73 » Fri May 22, 2020 1:20 pm

I have been with pprnoteco since 2015

Like clockwork, and during these trying times, I have been receiving my payments.

Stay safe.

VJ

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