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Simplifying Note Investing With Private Money: Expert Insights from Dan Deppen and Jay Conner


Mortgage note investing is a compelling alternative for those seeking to diversify their investment portfolios beyond traditional property ownership. In a recent episode of “Raising Private Money,” hosts Jay Conner and Dan Deppen delved into this lesser-known, yet highly lucrative, investment strategy. Dan, who has raised approximately $3 million for mortgage notes over the past year, shared his valuable insights into the world of note investing.

What is Mortgage Note Investing?

Mortgage note investing involves purchasing existing mortgage notes from lenders or other investors. These notes are financial instruments that promise to repay the borrowed funds with interest. Essentially, note investors step into the lender’s shoes, collecting monthly mortgage payments from borrowers. If the borrower defaults, the note investor can foreclose and take ownership of the property.

The Appeal of Annoyance-Free Note Investing

One of the most appealing aspects of note investing is the relatively hassle-free nature of the investment. Unlike traditional real estate investing, where landlords may deal with property repairs, tenant issues, and vacancies, note investors simply collect payments. This makes note investing more akin to a passive income stream, particularly when dealing with performing notes.

Raising Private Money for Note Investments

Raising private money is a cornerstone of Dan Deppen’s investment strategy. He built his approach around an educational model, sharing his learnings and experiences with a growing audience over time. By cultivating trust and providing educational content through newsletters, podcasts, and videos, Dan has attracted private investors organically. Rather than directly asking for money, he focuses on sharing what he has learned, which naturally draws in those interested in investing.

The Hypothecation Strategy

One key strategy that Dan employs is hypothecation. Hypothecation involves borrowing money to invest in a mortgage note, using the mortgage note itself as collateral for the loan. This method offers a two-tiered security system: the investor loans money to Dan, and the loan is then secured by the note. This layered security minimizes risk and makes the investment attractive to private lenders who seek high single-digit returns without active involvement.

Risk Management and Investor Protection

Risk management is integral to Deppen’s approach. Investors often worry about what happens if the borrower defaults. Deppen assures that his structure mitigates this risk effectively. If a borrower defaults, Deppen manages the foreclosure process, ensuring that his investors are not left to handle these tasks. This adds a layer of security for investors, making them more comfortable with the investment.

Finding and Evaluating Notes

Finding quality notes is vital, and Dan places a high value on network cultivation. Being well-connected in the industry not only provides access to exclusive deals but also strengthens trust with sellers and fellow investors. Leveraging this network, he buys notes with his funds initially and then refinances with private money, which allows for greater control over the buying process.

For those new to note investing, starting with smaller, easier-to-understand deals and incrementally building confidence and expertise is recommended. This approach underlines the need for thorough due diligence and an understanding of market norms.

Passive Income: An Attractive Proposition

Dan’s method de-emphasizes the complexity faced by traditional landlords. Investors can earn high single-digit returns passively, without worrying about property management. This philosophy of sharing knowledge instead of hard selling is appealing to investors who seek reliable returns without active participation.

Getting Started in Note Investing

Dan Deppen makes it accessible for new investors to get involved. His website, Fusion Notes, offers educational resources and opportunities to join his email list. Through his YouTube channel, Deppen provides in-depth explorations of various aspects of note investing, making it easier for newcomers to grasp the fundamentals.

In conclusion, mortgage note investing offers a viable, often more straightforward, alternative to traditional real estate investing. By leveraging the power of private money, employing hypothecation for layered security, and maintaining comprehensive risk management practices, investors can enjoy solid returns with minimal headaches. Dan Deppen’s patient, educational approach proves invaluable for anyone looking to enter this lucrative field.

10 Discussion Questions from this Episode:

  1. Understanding Note Investing:
    • What are the main differences between investing in mortgage notes and traditional real estate investments like single-family homes?
  2. Starting in Note Investing:
    • How can someone new to real estate begin educating themselves about the complexities and nuances of note investing?
  3. Raising Private Money:
    • According to Dan Deppen, what are the best practices for building a network of private investors without directly asking for money upfront?
  4. Risk Management:
    • What strategies does Dan Deppen use to assess and mitigate the risks associated with investing in mortgage notes?
  5. Deal Sourcing:
    • Where does Dan typically find notes to buy, and how does he determine whether they are worth purchasing?
  6. Hypothecation:
    • Can you explain the concept of hypothecation and how it is used in the context of note investing, as discussed by Dan Deppen?
  7. Investment Returns:
    • What typical returns can investors expect from mortgage notes, and how do these returns compare to other forms of passive investment?
  8. Investor Liquidity:
    • How does Dan Deppen handle situations where an investor needs to liquidate their investment earlier than planned?
  9. Common Challenges:
    • What are some common challenges note investors face, as mentioned by Dan, and what solutions does he offer?
  10. Educational Resources:
    • Dan mentioned his YouTube channel and email list as resources. How important is continuous learning and adaptation in the field of note investing, according to Dan and Jay?

Fun facts that were revealed in the episode: 

  1. Jay Conner prefers attracting private money by being a teacher, sharing knowledge about private money lending rather than directly asking for funds.
  2. Dan Deppen originally started his career as an aerospace engineer before transitioning to note investing.
  3. Dan Deppen likes to play the long game in raising private money, focusing on building relationships and an email list over time instead of seeking immediate funds for deals.

Timestamps:

00:01 Raising Private Money Without Asking For It

06:04 Attracting private money by teaching and sharing.

09:22 Pass-through payments enable passive real estate investment.

10:15 Borrower default? I manage foreclosure and lender involvement.

16:36 Investor terms match the underlying loan to refinance.

19:47 Build network for best loan investment deals.

20:51 Reliable networks attract deals and investment opportunities.

24:01 Non-performing notes might require foreclosure challenges.







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