“Due Diligence” always comes before success, both In the dictionary and in the Note (Cash Flow) business.   The cash flow business, just like any other kind of business requires the gathering of factual information on which to base a decision.  Whether you are an investor in notes, a note broker or a note consultant/finder, it just makes sense to know what it is exactly that you are considering investing in or have to offer an investor.

And yet, many note consultants, finders and brokers become so anxious and inpatient in their zeal to put a deal together that they shoot themselves in the foot by over looking  the importance of gathering  accurate information, finding the necessary ingredients and then compiling them in an understandable format for consideration. When you think about how much time, effort and expense it typically takes to locate a motivated seller, it would seem to be justifiable and worthwhile to expend just a little more effort into obtaining the information necessary for an investor to make a prudent investment decision.

Just take a look at the notes listed and posted on the internet, E-mailed in mass and presented at investment clubs that are unbelievably void of information on which to even conditionally consider.  Inaccurate and sloppy work just won’t cut it if you plan to succeed in the cash flow business.  I was talking to an institutional note buyer the other day who said he receives hundreds of “faxes” from note consultants with incomplete information.  Just think of the “acres of gold” that could be harvested, if the time were taken to obtain some basic information!!

Let’s consider a couple stumbling blocks to the success of new consultants in obtaining information from the note holder (seller)  First,  the reluctance of the seller to disclose the information and second, not knowing what information is needed or how to  ask for it.  If it wasn’t so sad, it would be humorous when sellers will not give you the information on the note.  Think about it.  It’s like going to the doctor for a cure, but not giving him the symptoms.  He says, “where does it hurt”, you reply – “You’ll have to guess, because I’m not going to tell you!”

My good friend, David Butler, talks about the guy wanting to sell a car, and when you ask him what make or model, or the age of the car or the mileage, the seller gets really ticked off and tells you it’s none of your business.  “What’s that all about” , Dave says.  Well in either case, I just can’t figure out why note consultants have so much trouble getting necessary information from a note holder (seller) It  could be that the consultant just doesn’t recognize that he is a buyer or it could be that the seller is simply note motivated.  Maybe time to review Henry Dvorken’s “Seven Reasons why Seller’s Sell”.  Henry asserts there are only 7 reasons – there are no more- every other is a variation of one these seven!

The other stumbling block is simply that the consultant/note finder, doesn’t know what information is needed, how or where to obtain the information, or perhaps does not have a “check sheet”  setting forth the information required by an investor to make the investment decision.

You will need to know things like: the position of the note, the original balance, the present balance, payment history, term, interest rate and any special provisions or clauses in the note.  You will need to know the security for the note:  If real estate is it a single family owner occupied residence, a multiple dwelling, vacant land, commercial property, what is the current value of the property?  It is important to know something about the payor like: credit rating, Is there any other financing on the property, if a rental property, what is the income?

Obtaining the information is just the beginning of the “due diligence” process.  Your job is then to verify the information, do the calculations yourself to be sure you are not sending out inaccurate numbers.  You only get one shot at this. If the numbers make absolutely no sense, your credibility is at stake- the ultimate “doomed diligence”.

You’ll learn about this and much more during the 2004 Cash Flow convention in New Orleans.  We look forward to meeting many of you in our Due Diligence Class where you will learn how to put together a presentation package and stacking order for presentation to an investor.  Or if you are an investor yourself, you will learn what to look for when considering a cash flow investment.  By performing your “due diligence” you can move along with maximum speed and minimum frustration. You can learn to be fast, but not so furious that “doomed diligence” takes over.

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Disclaimer

The information provided in this article is for general educational and informational purposes only and does not constitute legal, financial, investment, tax, or professional advice. Note Servicing Center, Inc. is a licensed loan servicer and does not provide legal counsel, investment recommendations, or financial planning services. Reading this content does not create an attorney-client, fiduciary, or advisory relationship of any kind. Nothing in this article constitutes an offer to sell, a solicitation of an offer to buy, or a recommendation regarding any security, promissory note, mortgage note, fractional interest, or other investment product. Any references to notes, yields, returns, or investment structures are illustrative and educational only. Past performance is not indicative of future results, and all investments involve risk, including the potential loss of principal. Note investing, real estate transactions, and lending activities are subject to federal, state, and local laws that vary by jurisdiction and change over time. Before making any decision based on the information in this article, you should consult with a qualified attorney, licensed financial advisor, certified public accountant, or other appropriate professional who can evaluate your specific circumstances. Some articles on this site include hypothetical stories, examples, and scenarios created to illustrate concepts and demonstrate the types of situations Note Servicing Center, Inc. handles. Any names, companies, properties, and circumstances in these examples are fictitious or have been anonymized to protect confidentiality, and any resemblance to actual persons or entities is coincidental. These examples do not describe specific clients and do not guarantee any particular outcome. Some content may be created with the assistance of generative AI tools and may contain errors or omissions. While we make reasonable efforts to ensure the accuracy of the information presented, Note Servicing Center, Inc. makes no warranties or representations regarding the completeness, accuracy, or current applicability of any content. We disclaim all liability for actions taken or not taken in reliance on this article.