Invest in Education: $50 off Paper Source Note Symposium

Happy Spring!

At this year’s Paper Source Note Symposium, I’m speaking on success habits for investing in real estate, notes and life. I’ll be sharing what I know about my specialty, investing in real estate without tenants and leveraging asymmetric risk in nonperforming second mortgages. And about the behavioral choices you can make for success in any aspect of real estate, notes, business or life.

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You can register here for Paper Source, April 11-13 in Las Vegas at the Tuscany Suites and Casino. Enter code SANDOR for $50 off registration. Join us for hiking in Red Rock Canyon, just outside Las Vegas, 8am Sunday April 14 before heading home. Places limited.

Here’s a recent interview I did with Brecht Palombo of Distressed Pro talking about why second lien investing is such a great field for building wealth.

Looking forward to Hawaiian vacation next week. Only without the missile crisis.



Go Ahead, Talk to Strangers: How to Get in the Wall Street Journal and Meet the Love of Your Life.

Conventional wisdom and the mediocracy teach every child not to talk to strangers. For many valid reasons.

You are no longer a child. You may have internalized what well-meaning adults ingrained in you before the age of reason, and it may be holding you back.Sandor SkinnerButte shirt meme (2)

Everyone you know and love was once a stranger. There have been some people you lived to regret trusting. But all the genes passed on by your ancestors and all the judgment you have you accumulated have refined your ability to choose people wisely. The risk of not talking to strangers is infinitely greater than talking to them.

Author Thomas Corley has dedicated himself to studying the habits that differentiate the rich from the poor. Seventy-nine percent of the rich network five hours or more a month compared to 16% of the poor. Talking to strangers pays. In more than hugs.

Your education, income, beliefs, accomplishments, and relationships are likely to be very similar to those of the five people closest to you. If you want to change your reality, you need to change your beliefs and your context. If you keep company with people living in perpetual lack and want, and you remain in lack and want, you may never be able to help them. Achieving success puts you in a much stronger position to help those in need.

In his book, “The Tipping Point,” Malcolm Gladwell writes about how weak ties are some of the most powerful connections we have. Those closest to us are likely to be very similar to us. Bringing about changes in your life will require associating with people different from you. To paraphrase Tony Robbins among others, if you do what you’ve always done, you’ll get what you’ve always had. New outcomes require new actions.

I try to talk to new people any time I go out in public. Waiting in line. Public transport. Airplanes. There is essentially no marginal cost to that effort—I’m there anyway. But it’s even better to target talking to strangers in contexts where you’d like to build relationships.

I recently went to speak at a real estate investing conference. In large part to get free admission to the conference, so I could talk to strangers. But not just any strangers. The kind of strangers whom I might help, and who might be able to help me.

I overheard someone talking. About how he was a journalist. For the Wall Street Journal. His name was Ben. I broke through discomfort to talk to a stranger. He was looking for things to write about. I wanted to share a message with more than just the people at the conference. Ben wrote this story that I’m proud to be a part of.


Last year, I went to a mountaineering event. I love climbing mountains—in part to be around people who also love the great outdoors, are committed to achievement, and enjoy eating freeze-dried food in tents. The kind of people I want to be friends with. And among those, the kind of person I’d like to spend my life with.

At the event, there was a young woman who looked a little like she might need someone to sweep her off her feet.  I broke through fear to find out whether we’d be the loves of each other’s lives. And we were.!Woodburn Tulip Festival 04-2018 Julie Sandor silhouette(9)

I have talked to thousands of other strangers on purpose. Most of the conversations came to nothing but pleasant chats and improved skills at talking with strangers. Success usually takes multiple tries.

I hope you live your life without waiting for someone else’s permission to do what you feel in your heart is right for you. But if you’re waiting for permission, you have mine. Go ahead. Talk to strangers.

Why Commercial Second Mortgages Come First, Part II

Originally Published by The Paper Source Journal, August 2018

By Sándor Lau

Part II

My previous article highlighted the advantages of investing in commercial second mortgages. All investing carries risk, but as my mentor Gordon Moss likes to say, “there are no bad notes, only bad prices.”

By investing in junior commercial notes, you can price according to your risk tolerance by taking into account some of these unique challenges.

Rational Borrowers: Negotiating with a rational person may seem like a great idea if you have any experience dealing with irrational homeowners, but it can be a double-edged sword. A borrower making an unemotional business decision about their debt may decide it is in their best interest to walk away or file bankruptcy. If you were in financial trouble and had to choose between getting your home or your investment property foreclosed on, which mortgage would you stop paying?

Unknown First Mortgage: If the borrower personally signed for the first mortgage, it may be on their credit report. And it may not. Commercial notes are often not reported on traditional credit reports. Without knowing the balance of the first mortgage, how will you know how much equity secures the second? The note seller may not have written authorization or access to information about the first mortgage.

You can ask, but without this information from credit or the seller, your best source of data may be checking title to see what the balance of the first mortgage was at the time of origination and whether the first lender has initiated foreclosure. Also check Public Access to Court Electronic Records (PACER) to see whether the business owner personally, or the business itself, has filed bankruptcy and if the first or second notes were included in that bankruptcy.

Taxes, Insurance, Liens: Commercial first mortgages are less likely to escrow tax and insurance payments along with principal and interest and are more likely to leave that responsibility with the property owner. The first mortgage may or may not actively monitor for other liens against the property.

We bought a note that was two years behind on taxes, and there was nothing on public record showing the first mortgage was doing anything about it. We insisted the seller convince the borrower to bring their taxes current. The borrower brought only one year of taxes current, so we lowered our purchase price in exchange for taking on this problem ourselves.

Difficult Valuation: Even if you can find a commercial property listed on Zillow, their valuation is likely to be very wrong. You can use the tax value, but in many counties the assessor’s value differs considerably from market value. Unlike residential properties whose value is primarily determined by the values of comparable nearby properties, commercial property value is determined much more by income. It may be very difficult for you to learn exactly how much rent is coming in. A commercial Broker’s Price Opinion (BPO) can take weeks and cost hundreds of dollars. “There are no bad notes, only bad prices.”

It could be hard to collect rent from a travel agency or video store!

Changing Value: Since value is determined by property revenue, it is determined in part by tenants paying their leases, which is in part determined by the quality of property management. As a note holder, you have almost no say in who the tenants are or how the property is managed. Tenants could stop paying or the manager could under-perform at any time, not only affecting immediate cash flow, but also market value.

Macroeconomic changes can also affect your property value. Small, local retail shops are threatened by online shopping and big box stores. Medical costs continue to increase with no end in sight. These days it could be hard to collect rent from a travel agency or video store!

You can argue with reality if you like. You can make your best effort to change it. Or you can change yourself, open your mind to new ideas, and build your future by adapting. Investing in unknowns requires what my first real estate teacher called intestinal fortitude. Success in the notes space is determined by your ability to make the right decisions about calculated risks with limited information in a short time. You’re not always going to be right. You just need to be right most of the time and have the patience to see your decisions through.

Sándor Lau is the founder of Noted Financial and has been investing in junior notes and speaking at the Paper Source Note Symposium since 2013. His Paper Source presentation videos and many others on how to live richly are all free atándorlau. We would be happy to quote a price for your junior loans secured by residential or commercial real estate.

Why Commercial Second Mortgages Come First, Part I

Investing in Commercial Second Mortgages

Originally Published by The Paper Source Journal, July 2018

By Sándor Lau

Part I


Investing in residential or commercial junior real estate notes can give tremendous advantages to investors willing to understand them and put in the effort and patience to collect on them. Some of  those advantages include:

Discount: Loans usually sell for a discount from the full unpaid principal balance. Junior loans usually sell at an even greater discount. Defaulted junior loans sell at some of the greatest discounts.

Diversification: Larger discounts and smaller loan amounts than first mortgages mean that the price per loan for seconds is typically lower than for firsts. Lower prices allow investors to diversify their portfolios across more assets in more markets, putting more eggs in different baskets.

Appreciation: My dream residential loan is a $50,000 second mortgage on a $500,000 home in an urban or suburban area of a nonjudicial foreclosure state where the borrowers are paying the first mortgage. Assuming uniform appreciation of 5%, that $500,000 house goes up $25,000 a year while a $50,000 home goes up only $2,500 a year.

Principal Paydown: Borrowers paying their first mortgage every month are reducing the principal balance of their loan, increasing the equity securing the second loan. The longer they pay, the more the loan amortizes down and more of their monthly payment goes toward principal.

Property Preservation: Whether or not borrowers are paying their first mortgage, as long as there is a servicer managing the first loan, that servicer is making sure taxes, liens and insurance are being paid. The bank is not going to let their $500,000 collateral get foreclosed on for a $2,000 HOA lien.

Borrower Motivation: Borrowers who are paying their first mortgage are also very likely to have a job or income stream. They pay the first mortgage because they enjoy living there (or collecting rent from their tenants). Their payment history as revealed by their credit report is the quickest way to see their level of motivation. If they have income and like living there, they are likely to be more motivated to want to pay their second mortgage.

I began note investing in the residential second mortgage space, but market prices for second loans, even defaulted ones, are now often higher than I’m comfortable paying. No one wins arguing with reality. You can try to change others, but it’s much easier to change yourself.

Looking for an additional investing niche, I have started investing in commercial second mortgages which afford investors most of the same advantages as residential loans, and a few more.

Commercial Mortgage Advantages

No FDCPA: The Fair Debt Collection Practices Act (FDCPA) governs collection of consumer debt and places severe restrictions and penalties on collectors who break it. I’m not a lawyer, accountant, or pro wrestler. If you want advice in any of those areas, please seek it from a qualified professional, but here’s what the NOLO Legal Encyclopedia says: “The FDCPA only applies to consumer debts incurred for personal or household expenses. It does not apply to corporate or other business debts.”

High-Value Properties: Commercial properties are often more valuable than average homes. If a $5,000,000 apartment complex, medical building, office, shopping center, self-storage facility or mobile home park appreciates 5%, it goes up $50,000.

Income-Generating Properties: Most homeowners only consider one option for generating revenue to pay their obligations — employment. Many homeowners are also perfectly capable of increasing their income by renting out rooms or space on Airbnb or driving for Uber or Lyft if they want to, but many prefer not to.

Investors who own commercial property are already entrepreneurial. That’s why they bought the property in the first place, and if they are motivated, they can probably find a way to increase income from the property.

Bigger Discounts: Very few investors will touch the most plain vanilla second mortgages — residential loans. Even fewer will consider commercial seconds. You may have heard of the law of supply and demand.

Shorter Terms: Lending money is inherently risky because the borrower gets what they want up front and all at once in exchange for a promise to consistently make their payment every month in the future. Every month is a new risk in that the borrower may break their promise. Whereas a typical home mortgage fully amortizes over 30 years, a typical commercial loan has a balloon in five or 10 years.

You can increase your returns by increasing the velocity of your money, buying at a discount and getting a full payoff in the shortest time possible. Most commercial loans also amortize on a shorter schedule, meaning the proportion of the first mortgage payment going to principal starts higher and increases faster than in most 30-year residential loans.

Rational Borrowers: Most people make the majority of their decisions based on their emotions rather than logic. And many homeowners decide whether to pay their debts based on whether it makes them feel good. Business owners are more likely to be more rational and acknowledge their responsibility to pay their debts.

Next month: The unique challenges of second loans on commercial property.

Sándor Lau is the founder of Noted Financial and has been investing in junior notes and speaking at the Paper Source Note Symposium since 2013. His Paper Source presentation videos and many others on how to live richly are all free atándorlau. We would be happy to quote a price for your junior loans secured by residential or commercial real estate.

Sándor Lau speaks at Paper Source Note Symposium, Las Vegas, April 27-29, 2017.

VIEW SLIDES from Sándor’s presentation: Intoxicating Assets Noted Financial Sandor Paper Source 04-2017.

Sandor Paper Source red rock promo 2017

After presentations end, join Sándor hiking in Red Rock Canyon to invest in your health and cash in on fun, just a short drive from Las Vegas. Spots are limited and you must register in advance. Learn more and sign up here.

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Paper Source hikers 2015.

Sándor Lau speaks at Paper Source Note Symposium 2016 on Intoxicating Assets.

Sándor has been a regular speaker at the Paper Source Note Symposium in Las Vegas since 2014, educating participants on how to achieve success in note investing. His 2016 presentation revealed new case studies, how he slept on the floor at the office for over a year so he could rent his home out on Airbnb to pay his own mortgage while getting started in note investing, and how the market is changing. Watch it on YouTube.