Hey Reader,

What if I told you that the borrower not paying is not the worst thing that can happen in note investing?

I know that sounds backwards. But after years of doing this, I can tell you the real risk in this business lives somewhere most new investors never look.

Today, I want to walk you through how I actually evaluate every deal using the 3 Ps. Property. Payer. Paperwork.

Notes Concept🧠

The 3 Ps are the three things I evaluate before I buy any note.

Property. What is the collateral actually worth? I want to know the as-is value, the condition, the location, and what comparable homes are selling for in that zip code. The property is my safety net. If the borrower stops paying, I'm taking back this asset, so it had better be worth more than what I'm lending against it.

Payer. Who is making the payments, and can they keep making them? I look at payment history, length of seasoning, employment stability, and the story behind why they're in this note. A borrower who has paid on time for 36 months straight tells me something very different than one who has missed three of the last twelve.

Paperwork. Are the legal documents clean and enforceable? I want a recorded mortgage or deed of trust, a properly assigned promissory note, a complete chain of title, and no missing assignments. Sloppy paperwork can turn a great deal into a legal nightmare.

Real World Experience💰

Every time I post about note investing, the same question shows up.

What happens if the borrower stops paying?

And here's the truth. That is not actually the right question.

Think about it. Have you ever financed a car? You know what happens if you stop paying. They repossess it. Have you had a mortgage? You know what happens. The bank can foreclose.

A borrower who stops paying is a problem you can solve. There are options. Loan modification. Forbearance. Deed in lieu. Short payoff. Selling the non-performing note. Foreclosure as a last resort. None of it is fun, but all of it is manageable.

What is actually hard to solve is what happens when the investor did not do the homework before they bought the note.

That is where the real risk lives. Not in the borrower. In the due diligence.

I've watched investors lose six figures because they fell in love with a high yield and skipped the work. They didn't verify the paperwork. They didn't pull a current valuation. They didn't know the foreclosure timeline in the state where the property sat. By the time they realized what they owned, the money was already wired.

The 3 Ps protect my investors from exactly that. And they protect the borrowers too, because when I buy a note the right way, I'm not in a rush to foreclose. I'm in a position to work with the family living in that home.

Mindset Shift 🔄

Most people focus on the wrong risk in this business.

They worry about the borrower. They should worry about the underwriting.

Here's the reframe that changes everything:

• Old thinking: What if the borrower stops paying?
• New thinking: What are my options when a borrower stops paying, and did I price this deal to handle them?

Every problem I've ever seen in note investing traces back to the same place. Something that got missed or skipped before closing. And almost all of it is preventable when you approach every deal with the right process and the right people around you.

A real estate attorney in the state where the property sits. A title company that knows what they're looking at. A professional loan servicer. A mentor who has walked deals like yours before.

You don't have to do this alone. The investors who try usually learn the most expensive lessons.

Stop thinking like a borrower. Put the lender hat on. Do the work before you buy. That is how this actually works.

Want the full playbook on what to actually do when a borrower stops paying? I broke it all down in my free ebook! Get it here​

Sierra

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