Note Investing Option
Bob Fraser is on a mission to help investors take advantage of one of the most effective and overlooked avenues of real estate investing: residential mortgage notes. As Founder and Principal of Aspen Funds, Bob has purchased more than 1,000 mortgage notes earning double-digit annual returns without the risk and volatility of traditional investing options.
With Aspen Funds, Bob uses his 20-plus years of experience in finance to oversee the company’s mortgage note portfolios. A Magna Cum Laude graduate in computer science from U.C. Berkeley and former Ernst & Young Entrepreneur of the Year Award-winner, Bob often makes bold, contrarian predictions about the economy and technology, most of which have already come true.
In this episode, we’re discussing…
[1:41] His background, how and why he started with note investing option
[5:04] Why is better to be the bank
[9:29] What is exactly a note investing and details about becoming a lender
[14:03] How do they deal with the Financial Institutions
[17:03] The yield investors get back and how they get investors
[19:06] About second liens and their advantages
[22:43] What about zero equity notes
[24:59] His opinion about today’s unpredictability of COVID, how is it going to affect and how he sees the value of notes
[28:01] The massive shortage of housing and how affordable housing is
[31:51] Other sources Bob utilizes to make investing decisions
Bob Top Tip’s
“I like to control my income, right, and not have it be driven by forces outside of my control. So that led me to, to real estate and specifically real estate debt. So, my partner, founded Aspen funds with me while he was a real estate guy”
“Let's be the lender. There's a reason why banks, have the tallest buildings in town, and it's good to be a bank, why not be the bank. And so, we kind of got into that and then found some very unique niches. So, there's a lot of ways to do landing, as you're well aware, and some are very boring and don't make money. Money others are a little more exciting”
“And there's a difference between lending to an investor and lending to a homeowner. Our sweet spot is buying mortgages for homes, where people owner-occupied real estate. So, it's a lot different. We love owner-occupied real estate, and it's super sticky, and it doesn't have the same cyclicality”
“In the niche, we're in residential, then we go one more niche into distressed residential. We buy notes, where the borrower has had a hiccup. So maybe bar had a divorce, medical problem, job loss, but those things are not permitted for most people. So, they get back on track, they modify their loan, they start paying in accordance with their turn. These are good loans. It could have a great property with the borrower had a past hiccup”
“We buy primarily from hedge funds or other financial institutions, where the borrower said: I want to stay in my home. So, we do that, we're doing people a favor, we're not kicking you out of your home, we're buying this paper that someone else may not want to buy”
“We have an income fund based on current yields paying 9% on a monthly basis right now. And here's the other cool thing about that. So, this is where we're very unique in the real estate world. Our fund has 500 loans in it, roughly about 8% of our portfolio self-liquidates every year, as people sell their home or refinance, they move they refi. Right, about 8%. I have an internal liquidity mechanism. This thing itself liquidates 8% per year”
“We allow investors to get their money back at any quarter if the quarter and a quarter just with notice. So, we have basically pretty much liquidity now if everybody wanted their money back all at once, you know, while we're not going to be able to do that, but I’ve never missed a liquidity request”
“A second lien is a sliding scale, it could be just the same as a first if it's a lot of equity above you, right. But or it could be super risky. If it's, you know, you're not covered by equity. So, there's a sliding scale. So that's the thing about seconds is they're not as simple as first, you choose your risk. Yeah. And that changes the price dramatically”
“What we real estate prices begin to go up and we saw the stock market begin to go up and here's the trick is printing money creates inflation, the problem but the issue is it doesn't create consumer price inflation, it creates asset price inflation. So, when the government's printing money, I flipping assets, okay? Buy it, buy anything, buy stocks, real estate, and anything that is an asset is going to go up in value because money is going is getting cheaper relative to the price of the asset, so it's time to back up the truck and buy assets and single-family homes are literally so many tailwinds behind them”
Mike’s Top Tip’s
“I always tell people that if you're interested in something like notes, get a mentor. Don't go out and just do it on your own. Learn from someone like Bob learn someone that has done it”
“I keep telling everyone that you want to diversify your portfolio. And the more passive it is, the better off you are. And you should have at least six or seven different tree limbs coming off of that big trunk in your diversification. And I think notes might be a big part of that”
Resources from Robert
ABOUT ROBERT FRASER
Bob Fraser is on a mission to help investors take advantage of one of the most effective and overlooked avenues of real estate investing: residential mortgage notes. As Founder and Principal of Aspen Funds, Bob has purchased more than 1,000 mortgage notes earning double-digit annual returns without the risk and volatility of traditional investing options.
Bob has personal experience with the unpredictable nature of public markets. In the 90's, he launched a tech company, raised $44 million in venture capital, and grew it to over 300 employees. Then the tech bubble burst and he transitioned to finance and investing, becoming CFO for several organizations and running a hedge fund. In 2012, he met business partner Jim Maffuccio, and the two found an alternative way to invest in real estate without the volatility of traditional options. By purchasing discounted residential real estate notes in the American heartland they discovered a high yield, liquid, asset-secured investment that produced consistently superior returns without all the risk. Better yet? They could work with homeowners to help them stay in their homes. Everyone wins.
With Aspen Funds, Bob uses his 20-plus years of experience in finance to oversee the company’s mortgage note portfolios. A Magna Cum Laude graduate in computer science from U.C. Berkeley and former Ernst & Young Entrepreneur of the Year Award-winner, Bob often makes bold, contrarian predictions about the economy and technology, most of which have already come true.