Note investing is considered the secret realm of real estate, which is all about earning money by dabbling into the industry’s paperwork. In today’s world, where passive income starts to gain a lot of importance, what can you do to start involving yourself in this flourishing field? Lisa Hylton brings Susan Elliott of Flow State Investing to share the most important strategies in note investing, particularly with non-performing ones. She discusses how to make the best returns out of such deals even without guarantees, the right way to assess non-performing notes, how it can diversify your portfolios, and which type of investor is the best to partner with. Susan also shares how they bring opportunities to many people in note investing through their work at Flow State Investing, where she serves as its CMO.

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The Different Flavors Of Passive Investing – Uncovering The Secret World Of Note Investing With Susan Elliott

I am super excited to have on my show, Susan Elliott. Susan is a fellow real estate investor goddess that I met in the Goddess Program. After spending a decade paddling whitewater rivers across the world and realizing that even a dream engineering job would not provide her with the freedom that she wanted, Susan found real estate investing. She quickly discovered that slaving away as a landlord prevented her from training for ultra-marathons, exploring remote rivers, and taking her daughter on multi-day backcountry trips. She soon found the little-known world of note investing and two rock star partners. Together, they saw the potential to build Flow State Investing into a business to create wealth for their families, investors and homeowners that day would help to keep their own home. Susan educates investor partners about the wealth-building and positive impact of notes and how adding note investing to a real estate portfolio can help diversify and mitigate risks. Susan, welcome to the show.  

Thanks, Lisa. It’s great to be here. 

There’s some good positive goddess energy on the show. I love it always. 

It’s nice to reconnect with the goddess network and female investors in general. 

If we want to do bigger things in this world, we need to start growing our wealth. Click To Tweet

Our show is broken up into three sections. The first section is going to be background. The second section is going to have experience and the last section is reflections. To get started for us to get a feel for who Susan is, can you share with us where do you live? 

I live in the Columbia River Gorge, about an hour outside of Portland, Oregon in the Hood River and White Salmon, Washington area. I live on the Washington side so the Pacific Northwest is my home. 

It sounds beautiful. It sounds like it might be green and nice rainy weather. 

Good seasons. We’ve got rain, snow, sun, and winds. We’ve got rivers and mountains. That is what drew us here to the Pacific Northwest. The mountains, rivers, and outdoor access around here are phenomenal. 

What do you do for work? 

I run Flow State Investing. I founded Flow State Investing and we searched out nonperforming notes. We help investors diversify their portfolios by adding note investments to their portfolios. I also am an engineer. I work in river restoration engineering. I come from a background of spending many years guiding, teaching kayaking and traveling all over the world to be able to facilitate incredible outdoor experiences for people. To teach them how to take on those adventures by themselves or on their own. I’m giving people the skills to be able to explore beautiful landscapes all over. 

I fell in love with the river and I decided though to ignore my finances for a while. Luckily, I didn’t get into debt, but I never gave it the justice that it needed that finances can do. The good that we can do when we care about our finances, when we grow our wealth. I focused on the freedom side of life and being able to have incredible experiences, meet people all over the world and develop this rich experience-based life. I ignored the wealth side of it in terms of finances. Especially having my daughter was a big impetus as well as far as we want to do bigger things in this world and we need to start growing our own wealth and putting the value in that. 

When I first turned to the job world, I thought, “I want to keep in rivers. I’m going to become a river restoration engineer.” I went back to grad school, got my master’s, and now I work in engineering. It’s a wonderful practice, but it lacks the social benefit to the world that I didn’t know I was craving. I find that real estate investing fills that goal a lot better than in engineering. As a real estate investor now, I’m able to grow my wealth faster so that I can give back to the people that could need a little extra support. I can also give back to the landscapes that have given us so much to be able to recreate in the outdoors, which I did a lot of before but from more of an advocacy volunteer role and not as much as a big donor role. 

We’re going to dive deeper into note investing, but before we jump into that, one more item for you is what do you like to do for fun? 

You’d probably guess from everything I’ve said so far that I like to play outside. There’s something censoring about being outdoors for me, so almost any way to be outdoors. I was out at the beach here on the Columbia River with my daughter and we were checking little shells into the river for an hour. It was delightful and feeling the sun and the wind, and even getting cold or getting hungry. Overcoming little obstacles as you go. 

The outdoors boil things down in ways that feel pure and present. I like to do that. You might also find me training for ultramarathons. My newest thing is to try to run around these volcanoes here in the Pacific Northwest. I got to run around Mount St. Helens. I’m hoping to do Hood and maybe Rainier in the future. There’s always paddling. I did paddling for so many years that it’s fun to do different sports and different activities. 

I love the multi-dimension of your experience in your life. That now brings us to your experience and we want to dive into note investing. Share with my readers, first, how did you even discover note investing? 

It’s like the hidden realm of real estate. It’s the paper world behind the big houses and the big apartment buildings that we look at. It’s a secret world. I found it through this period of exploration. I began investing in single-family home rentals. I got some short-term rental businesses running with my partner as well. I kept on wanting to learn that there’s got to be something better out there. I took some seminars and courses. I discovered note investing through Paige Panzarellowho’s become one of our mentors and coach, and now is a member of Flow State. 

Her method of teaching on how to do the extreme due diligence process that’s required behind notes and her systems is something aligned with me. I can do this business from just a computer anywhere. I can be location-independent. I don’t have to go to the properties. I can get boots on the ground on the properties where when I need them. There’s this element that I’m working towards helping people keep their own homes. That struck me as something that aligned with a goal of mine that’s wanting to have a bigger impact in the world and get my investing dollars working for something good in this world. 

LUR 68 Susan Elliott | Note Investing

Note Investing: When you invest in a note fund or partnership, you are essentially diversifying across many markets.


Putting my money into the blind stock markets where I don’t know what those companies are doing. I don’t have the time to evaluate their practices. What I do know is that when I give someone one more chance to keep their home, I’m helping build generational wealth for years to come. I’m helping that community. I’m helping make an incredible impact in that one family’s life. That felt tangible and exciting to me. That’s how I came upon note investing. 

My business partners, Jaime and Kevin, also discovered it about the same time. It was one of those like, “Do you guys hear that? Isn’t it cool?” There was an alignment there, too, where we all saw the potential in building a business here, scaling it and helping other people get into notes. As many things in our life, there’s a lot of signs that point towards it. Everything was pointing towards notes for us. 

Can you dive a little bit in terms of what is the difference between a nonperforming and a performing note? 

Performing note is when you only have a borrower that’s regularly paying their mortgage. They’re making payments as scheduled. I’m standing in my primary residence, so I make my mortgage payment every month. My loan is a performing loan. A nonperforming loan is one where that borrower has stopped making payments or has stopped and started making payments in the past. They’re struggling to make those payments. The big bank, the institutions that originate a lot of these loans don’t want to deal with this. 

It’s costly for them to go through the process of foreclosure, which is what happens when someone stops paying their mortgage. That house is going to be foreclosed. Oftentimes, there’s this limbo period of people accruing fees and making some payments but not all of them. The banks and these institutions, these large hedge funds, don’t have the desire to work with these borrowers. They essentially want to offload these notes onto other investors, funds that want to deal with them. That’s where we come in. 

Diving deeper into that, what is your investment strategy in terms of note investing? Do you focus on nonperforming versus performing? It sounds like you focus on nonperforming and why? 

There’s a lot of different ways to add notes to your portfolio. We like the nonperforming buy box as I call it. It’s similar to fix and flippers, what we see on HGTV. They’re going to go and buy this junker house. They’re going to put a lot of work into it, add a lot of value to it, make it look beautiful and make it work better. Maybe new plumbing or new something in there, and then they’re going to sell it in a fairly short time period and make a profit for it. That’s what we’re doing with nonperforming notes. We’re essentially flipping the paper. 

We take a nonperforming note. We’re able to work with that borrower through our licensed servicer. We’re able to work out a new payment plan. Maybe we’re able to drop their payments by $50 or by $100 a month. We talk to them and say, “Is this something that you think you could start making payments on?” We give them another chance. We go through a seasoning period where they’re now making payments. The note is reperforming at that point. When it gets to be about twelve months or a certain length of time, we can then take that note and sell it as a performing note. 

We’ve essentially added value to the nonperforming note to turn it into a performing note. All the while, we always have the backup and the security of the actual house. We can always foreclose if we need to. When we underwrite our note offers, we always underwrite that conservative, “What would happen if we ended up with this house?” We’re underwriting it to that foreclosure scenario, but our strategy is to get the note to reperform because we can, one, keep that borrower in their own home, keep them building equity and wealth in their own home, and we can make some great returns. 

It makes me think about the marketplace of where we’re at COVID 19 pandemic. Many people have lost their jobs. It would make you feel that maybe there are a lot of people who are in that situation where they might have to foreclose. They’re unable to meet their mortgages. Do you see this as a good time for people to be in note investing, given your experience? 

I do. There’s a shake-up in the note world. Luckily, a lot of people are getting their jobs back. The unemployment numbers are dropping every day, which is great to see, but it doesn’t mean that they didn’t have trouble along the way. We are seeing people who went into forbearance working out new loan modifications with their lenders, which is great to see. Maybe they’re tacking on payments at the end of their term, but they’re able to keep that existing payment structure with their lender. 

Unfortunately, there are people who weren’t able to make payments and those banks are not willing to keep those assets. The banks are constantly trying to rebalance their portfolio. They want to get the bad debt out of the way and make room for good debt. There is potentially going to be a wave of additional supply essentially in the market of note investing. I’d like to think that a lot of people maybe lost their jobs for reasons far out of their control. They’re willing and able to get jobs back. They’re willing and able to make things work because the pandemic was an external circumstance that disrupted a lot of our everyday life. 

It wasn’t a large medical expense that the borrower came upon and then was unable to make payments. It was these outside scenarios. I’d hope that there’d be a lot of borrowers that are still wanting to keep their homes and wanting to work to be able to get back on track. It’s going to change the market. Supply will probably increase. The numbers that we’re seeing are dropping, which is phenomenal. There is a good bit of debt out there that is past due to a lot of nonperforming notes where there wasn’t before, with an increase in supply, that often means steeper discounts for people like us who are looking to invest in that realm. 

This then brings me to why you guys have chosen to syndicate notes because you are a syndicator and your asset of choice is notes. That’s so cool because a lot of the syndicators that I have on my show are syndicators of multifamily. It’s cool to have someone on who is doing syndication and their asset of choice is notes. 

Align yourself with people who are getting things done at a high level. Click To Tweet

It’s a great way for passive investors who like multifamily. Maybe they even have a couple of their own single-family rentals. It’s a great way to diversify into many different markets. A single multifamily property is in one market and yes, you can put your money in multiple multifamily properties, so maybe you’re in Texas or maybe you’re in the Southeast. You’re diversifying across that. When you invest in a note fund or a note partnership, you are essentially diversifying across many more markets. Every individual note is a little bit more equivalent to an individual apartment in that multifamily building. 

You might have 200 units in there, but instead of having 200 units in one place, in one market, you have 200 units across the United States. We don’t work in every market. We have extreme vetting for the markets that we do purchase in. We purchase in nonjudicial states, for instance, where the foreclosure process is much smoother. We purchase in areas that have similar job growth and population statistics that you would look for in a market that you’d want to be able to sell or rent a house. We could end up with that asset. We want to be able to sell it right away and get that capital moving in the velocity model one more time. 

We do have fund options. We have the fully passive limited partner options and then we do a partnership option. For people who want a little bit more hands-on experience, and when I say hands-on, you just get a view behind the curtain as far as what are these assets look like. You know exactly the assets that your money is in. Whereas in a fund, it’s in a pool of assets at that point. If someone wanted to deploy a certain amount of capital and see behind the curtain a little bit, that’s a great way to learn a little bit about notes while your money is working in it. 

Also, it lends itself way easily for you to be able to start putting performing notes into your IRA or into your portfolio that are strict mailbox money. It’s almost the most passive form of real estate that you can do as a single person. You’re not doing any maintenance or any tenant issues. You are simply collecting payments at that point. If you start with a nonperforming, you’ll see the strategy that involves a lot of extra work and extra touchpoints between you and the borrower. It’s a great way to open your world up a little bit with potential different investing strategies. 

I love being able to explore all the different ways that investors can invest passively in real estate because these are all different types of ways to invest passively. For someone reading who might be interested like, “I never thought about note investing,” here’s the opportunity to come in at that passive LP type role or you could also come in and say, “I want to be more of a partner with you. Leveraging your experience and your expertise because you’ve spent the time to learn about notes, how it works. Also, what’s important in terms of the things that you need to do, and then the things that you should avoid when investing in notes.” Before we get into that, I want to talk a little bit about your team because anytime we get into syndications, team is super important. Can you share a little bit about your team? Who’s on your team? How you guys met and the roles that you guys play? 

The core team is myself, Jaime and Kevin Tulley. Jaime and Kevin worked more in the operations side of things. They’re the ones that are taking the notes. They’re managing those assets. They’re performing a lot of the due diligence. I work a lot with our capital partners. I do a lot of the guiding through this process. We put a lot of time and attention into education for our investor partners because this is a little bit of a new asset class for most people. We recognize that. At one point in the history of real estate investing, multifamily was this new thing. We’re like, “What do we do?” 

I feel like the level of education of real estate investors, in general, is getting a little bit higher, but now I feel like there’s another strategy here of note investing. I want to draw back the curtains and help people understand how to do this. I do a lot of our legal work. The fourth core member of our team is Paige Panzarello. She’s been doing note investing for the past several years. She built her own personal business and doing specific nonperforming notes, so this specific business strategy for that amount of time. We brought Paige onto our team because while we’ve been in notes for a few years, we want to have that long track record coming into this. 

We want to have Paige’s eyes on every single asset that we’re in for our first few years of business. For us to invest in having her as a member of our team, she’s our senior analyst or senior asset manager. No question that was a value that we absolutely needed to bring to our company at the time. That is Flow State Investing. Another team member worth mentioning is the law firm, our loss mitigation and servicing team that we use. We work with loss mitigation and that’s just a fancy word for trying to prevent foreclosure. This servicer that we work with is licensed in every state that we work in. They know what they can and can’t say to borrowers. 

They keep us in line legally. They can move forward taking action the moment that it’s needed to take to be able to move forward. What’s great specifically about this team is that they only work in nonperforming notes as well. They know what they can say to borrowers. They know some ways to help them understand the value of keeping up with payments and keeping their home. There’s a little bit of financial education that goes into this, too, that we’re hoping to help with. That team is our direct communication with our borrowers as well and they’re important. We leverage on the ground team members, local realtors and local networks of investors to be able to sell our foreclosed property, too. It’s that extended network of the team. 

As I share and talk to investors because I’m also in the syndication business, team is so important. Being able to see that you guys are investing in yourself, but then you’re also surrounding yourself with experienced team members like Paige. Also looking at more experienced vendors in the case of the law firm that you work with. All of that further enables investors to then understand that you are working with experts in the field, which helps a lot. 

It’s important to align yourself with people who are getting things done at a high level. 

LUR 68 Susan Elliott | Note Investing

Note Investing: If your goal is to have passive monthly income, notes may not be the first place you want to go for because there is a chance that you may not see your money until the end.


This then perfectly leads into the process. Could you break down for us the process that you guys take? I would like to go to the process of someone who is interested in investing would take. Let’s first start with the process internally in your business. What is the process of you guys investing in nonperforming notes? What does that look like? 

It starts with getting an asset list from our sellers. These are asset managers from these institutions, larger entities, larger hedge funds. We’re the secondary market in this way. We get this list of assets and they’ve already picked off the assets that they want. Maybe they’re looking for performing notes. Maybe they’re looking for performing first but nonperforming second positions. Whereas we only buy nonperforming first positions. We get this large list. The bulk of our work is in the due diligence phase of note investing and we perform three lines of due diligence. 

The first line is on the actual physical asset, the house. We want to confirm what the value of this house is as it sits in its place as if we were going to sell it with no improvement. We employ local people on the ground to be able to get us up-to-date photos of the house. We do a comparable analysis of different houses in the area to be able to get the fair market value of that house right then. The second line of evidence we do is on the paper trail. We’re doing a deep dive into the title history of this asset to the borrower’s history a little bit. 

The third line is the borrower. We’re pulling credit reports. We’re doing our due diligence there to see if there are any clues that this borrower either probably wants to keep this home or this borrower is someone who is just trying to game the system and doesn’t care about keeping the home. In which case, we’re not going to even try to purchase that note because we don’t want to end up with the foreclosed house. We’re doing this huge line of due diligence process. We’re making a lot of phone calls. We’re making sure there are no back taxes. We don’t want any surprises. 

We then make offers on these notes with the seller. Once we come upon an agreed price, we’re able to purchase those notes. Our investor partners come in at that point and purchase notes with us if it’s a partnership. If it’s a fund, we have set up that fund prior and we’re then working with that capital in the fund to go through this process. The second step we do is we immediately onboard that note with our servicer and we want to start making borrower communications as soon as possible. There’s always a little bit of a time lag to be able to do the communications with the borrower to negotiate new terms. Maybe 1 or 2 months. 

We want to know as soon as possible if this borrower is willing to work with us. If we can get the borrower to find payments that worked for them, and then start to get them making payments as soon as possible again. If we find that they don’t want to make payments or they can’t, then we pursue a different exit strategy. We’re first going to pursue something like a deed in lieu of foreclosure or a short sale. These are some options where we end up with the asset and with the house, but we’re still offering incentives to help that borrower or maybe we’re preserving their credit a little bit. We’re speeding up the process a little bit which is great for us, too, because we can get that asset sold and get that capital working on another note again and it also helps the borrower move on with their life. 

If none of those work, then we will immediately move towards foreclosure. What’s great is our loss mitigation team will take action immediately. The biggest risk here is that you’re going to get a borrower who is trying to gain the system or is trying to lead you on like, “Yes, I can do that,” but then doesn’t, and then says they will and then doesn’t. Fortunately, our lost mitigation team has heard it all and they will absolutely move forward with legal processes if we have to. We are this borrower’s last chance, but we’re not this borrower’s mom. We have our investors to look out for and we want to do right by them first and foremost. 

We move forward with those exit strategies. If we are successful in getting the borrower to make payments again, we hold the note for a certain length of time, usually about a year. We attempt to sell that note and we sell that note as performing notes to be able to get the capital back working again. The timeframe on note investing in our strategy is typically 12 months to 18 months. It certainly could be longer and it can be shorter as well. Sometimes, a deed in lieu might only take a few months to get that capital back and still make our minimum returns. It’s a little bit shorter of a hold time as compared to multifamily syndications or certainly, single-family home investing. 

Connected to that, we’re getting many different ways to take it. The first is the minimum return. What is the minimum return that you guys target for? There are no guarantees in investing with people. Let’s just keep that. 

All of our projections are based on historic and not the future. Especially with the pandemic, we’re certainly doing our best to mitigate it. We underwrite so that our capital partners are walking away with at least a 10% to 12% return. That’s where that worst-case scenario of our foreclosure. Sometimes, that’s in a six months period. Sometimes, that’s in a twelve months period. It’s a return on transaction. The IRR is a metric that isn’t as applicable when sometimes, our notes last for two months and sometimes, they last for eighteen months a little bit. The returns can go up after that depending on the strategy we work out and depending on how long we hold it for. You know how that all works.  

One other thing I wanted to dive into on this is the payments. I’m guessing it’s going to vary based on the note and what you’re able to negotiate with that particular borrower. You could have a borrower that you purchase a note. You have conversations with them and they now start paying little bits of money. Perhaps you could then start making distributions to your capital partners, but then you might have a note that might not do that. Is it fair to say that distributions are going to vary depending on the situation? 

Even though something isn't labeled as passive, it doesn't mean that it will require a lot of your time. Click To Tweet

That’s a great way to put it. There could potentially be monthly cashflow distributed. If that borrower is starting to make payments, then we’ll be distributing cashflow as those payments come in. If we don’t have a borrower making payments and we’re moving towards another strategy, then that means all the returns are going to come at the upside at the end. When we talk to our investors, it’s important to help me understand and make sure that they understand. 

If their number one goal is to have passive monthly income, notes may not be the first place you want to go for that. There is a chance that you may not see your money until the very end. You may not see your returns until the very end. What’s nice is that they’re a lot shorter. Even for myself, I have notes and I have it going into an account. That account becomes where my income comes from, but there’s a delay in that. There’s not cash immediately after we complete our partnership agreements as some other styles of investing. 

This brings me to how could something that is nonperforming? I’m sure people who are reading are saying, “These notes are nonperforming.” How could they provide the best returns in your opinion from your experience? 

It is funny. I almost want to rename them into high potential note investing because the nonperforming sounds like, “How can we make money with something that’s not performing?” The answer there is that we can add the value to get it to become performing. Whereas other institutions and hedge funds may not be able to add that value. Nonperforming notes are sold at a much deeper discount. We’re buying these notes for pennies on the dollar sometimes. We’re always underwriting to the value of the house. We’re even purchasing these notes so that we can make a profit if we end up with a house and we sell the house. Even if a nonperforming note can’t become performing, then we can still make good returns on it often because of that steep discount that these are sold with. A nonperforming note has a lot of potentials there to add value. 

Building on this, I want to talk a little bit about when someone who is reading this is like, “I love the idea of note investing, but I don’t want to go and do this on my own. I like the idea of being able to invest in note investing passively.” I feel like you’ve touched on some of the ways, but could you articulate to the audience, what are some of the ways in which this investor could get exposure and add nonperforming notes to their portfolio in a passive way? 

You can certainly join a fund as a limited partner. That’s a passive way to do note investing. We offer a certain business model strategy, but other groups might offer a different business strategy that aligns more with your goals. For instance, maybe there’s one that has an income right away. Their fund is based on performing notes and not necessarily nonperforming notes. Oftentimes, with funds, you’ll find a mix of those. There may be monthly distributions even if there are some nonperforming notes in the mix, but it depends on how that fund is set up. You’ll learn all about that when you’re doing your due diligence with different operators. 

I want to stress, too, that the partnership route, we have that setup. Technically, you are an active member of the partnership and we set those up as either JV partnerships or owner-operated. An active member of a partnership shouldn’t be confused with spending lots of time. We all know that the value of learning about the assets and investing strategies, that time that we take to invest in ourselves to learn about real estate investing means that we’re making wiser decisions further down the road. It might mean that we’re able to make higher returns down the road because we’ve learned so much about an asset strategy that we’re then able to do some element of that on our own. 

It’s generally accepted that the more active you are in investing, the potential for higher returns, more passive and you get regular steady returns. Everybody exists in the gray area in between. I like these note partnerships because you’re not spending a lot of time. You have the initial wave of vetting your partner as you would in any investment and as you would with any new operator. You’re getting a little bit more education along the way than you would as being just a strict limited partner. You’re learning a little bit more and you’re able to even say how much you want to participate and how much not. We make sure that we always go to our active partners with key decisions. 

We might say, “This isn’t working. They’re not wanting to take payments, so we are going to pursue foreclosure.” That’s a point where we say, “Is that a thumbs up or thumbs down? Do you have any questions?” We have some partners who understand the process so much that they just say thumbs-up, and then we move forward. That’s their participation in asset management. We have some partners who want to ask a couple of questions here and there and learn about it as they go. It’s like pick your own journey, but it’s not necessarily a ton of time. I definitely want investors to know that even though something isn’t labeled as passive, it doesn’t mean that it’s going to require a lot of your time. You might be discounting a lot of opportunities that could grow your wealth more rapidly if all you’re doing is looking for those words, passive investing or limited partner, on your opportunities. 

Thank you for sharing that. That’s so important. Moving on from there, I wanted to talk about a little bit before we get into reflections, which is assessing nonperforming notes. In this conversation, you stated a few different times some of the things that you guys look at, which are nonjudicial states, job growth. Regarding this, I want to focus on the top 3 to 5 things that you would say you guys look for when assessing to purchase a nonperforming note. 

LUR 68 Susan Elliott | Note Investing

Note Investing: There is this potential that borrowers can try to trick you or do what they can just to keep their home again.


We call this our buy box. What are the specific criteria that we say, “It has to be this?” It’s a long list. We work in nonjudicial states. We want to work in states where the foreclosure process takes months and not years to happen because of the extended hold time that we’d have to underwrite to. We work in populations that are 50,000 people or greater. That’s a great way to filter a long list of potential assets and say, “We have a higher likelihood of selling this house to either owner-occupiers or investors.” Investors want to look for that as well so that they know that they can rent it out to somebody. 

We look for populations in there. We look for diversified job growth as we would if we were looking for single-family buy and hold rentals to have. There are a couple of other things. We consider manufactured homes, but generally, we say no to manufactured homes. We look at how long the borrower has made payments on the house. We look at if it’s owner-occupied or investor-owned. We look at if there are any bankruptcies on the credit history. 

We look at how much fees have accrued. We look at the whole slew of background on the borrowers that we pull. We look at their employment history. We look at their other debts. We look at a lot of things in order to say, “Is this a good candidate?” We do have these criteria that are green light or red light, yes or no. With other things, it’s a little bit of an interpretation of value, of looking at them as a whole picture. 

It also lends to the fact of how much the extent of the due diligence work that you guys are performing to determine whether to move forward on purchasing a nonperforming note or not. All the different things that you’re looking at, which also speaks to the benefit of leveraging the experience and working with the team, etc., when approaching this area. 

Those are great ways to mitigate risks because we have so much flexibility in exit strategies. We have so much flexibility in playing with the numbers and modifying terms in any way we want to be able to help that borrower reperform. You can also lose a lot of money if you do not know what to look for in these notes. I want to stress, people may be interested in notes and start researching who’s doing what in the note space, but make sure that they know what they’re doing. Make sure they come with that track record that they’ve already invested a lot of their own money. 

We’re going to move right into reflections, which is what are the things that you don’t do when investing in nonperforming notes? 

You always get boots on the ground. You always look at the property as it sits right now. You’ll see people who confirm something on Google Earth. “There’s the house, but maybe that house is burnt down.” You don’t ever glance through the title and the entire owner and encumbrances report, which is a massive report that we order. You read every page of that. You ask questions with your lawyer about every page and everything you don’t understand in there. The third thing I would say is you never assume that something was recorded or doesn’t exist anymore. For instance, a lien or a judgment, or back taxes. You always confirm. You always make the calls. You always look for the missing assignments. You always fill in the pieces that are missing. You never assume, “We’ll be able to do that later.” 

One other thing that came up for me when you said about the house potentially being burnt down, I would assume that you guys require them to have insurance on the property as well. 

We do. One of the first things we do when we purchase a note is we put force placed insurance immediately upon the house. Before we even have to ask that borrower and confirm that there is insurance on the house, we put our own insurance on that house. That’s to preserve our collateral. We’re basing this on the asset. That’s real estate for you. It is the asset. It is the physical property that we have as collateral. That’s what makes real estate investing such a great alternative investment because it’s secured by something. We want to confirm that value and we want to confirm that it is insured. 

This question is the things that you must do when investing, but I don’t know if there’s anything that you missed because I feel like your answer to the first one covered all the don’ts with all of the things that you have to do, but in case there’s anything there that you must do that you didn’t mention. 

I go off when I get asked about notes. I love talking about it because it’s such a fun unique asset class or strategy. Maybe with a specific focus on the investors, something you always should do is ask about where something went wrong. What’s the worst thing that’s happened to you as a team with your assets? What would happen if one of you got hit by a bus? There are definitely questions out there that are great things to throw in a team to see what they say, what they come up with and how they respond. 

Also, in that vein, for passive investors, for someone who wants to invest in one of these nonperforming notes passively, either active, passive, or full passive, anything else that they should consider in terms of returns or anything else in that vein they should think about? 

The biggest thing is that not to expect monthly payments right away. You’re in this for the potential great returns that you can get with the reperforming and even have shorter capital hold time with some of these other strategies. Know that you may not get monthly distributions right away. The other is that as with any investment, we have projected capital hold times. Generally or historically, the capital whole time is quite a bit shorter with notes, which is a great way to get your feet wet in it or just use that money for different things as you go if you change or you need it. 

It’s a little bit more liquid in that way. There are no guarantees that your money is going to be back in twelve months exactly, for instance, or eighteen months exactly. Similarly, there are no guarantees that we’re going to hold your money for that long. Maybe we get the capital and the return back in six months and certainly, we can turn that capital again, find new notes, and keep it moving and growing. It also might come back to you. 

This scenario here that you’re talking about sounds to me like someone who is invested in a fund. It would sound more like when investors invest in a fund. Their money is in the fund and then it buys the different notes. Once the note process is now complete, the money’s now back. You then as an investor can choose to be like, “Yes, I want to reinvest for another noteI want to take my money out to do a different type of investment altogether.” 

That’s true. It’s the same for our partnerships, too. At the end of the note that we’ve agreed to purchase, there’s an opportunity to re-up that partnership and keep it going. If everything’s working and you like it, then we’ll keep on growing that money. There can be options to continue. What’s nice, too, is that there’s more opportunity to get your capital back as opposed to a 5 to 7-year hold. 

Connected to that, I want to ask you about the things that you love about it. Before I get to that, I wanted to ask about as investors think about investing in nonperforming notes, who’s the ideal nonperforming note type investor, if that makes sense? The reason why I asked that is because every time I meet people who are interested in real estate, I always say to them, “It’s important for you to first get clear on what you want real estate to do for you.” 

Taking time to build relationships is valuable when focusing on your endeavors. Click To Tweet

Some people come to real estate and they want cashflow. Some people don’t want cashflow. They want some losses because they have lots of maybe passive income that they want those losses to offset. Other people are looking for tax benefits. They are going to look to invest in multifamily syndication so that they can get those tax benefits to decrease their taxes. It’s in that vein my question is coming for you to share based on your experience the benefits and the most ideal type of investor for nonperforming note investing. 

My first reaction to that is someone who is excited about potentially big upside because the nonperforming notes specifically, we’re purchasing them for such a steep discount. If we can add the value in there and then sell them as performers, we’re looking at a potentially great return on that. These discounts might be anywhere from $0.50 to $0.60 on the dollar, give or take depending on market conditions. If someone who is excited about this velocity style of money like, “I want to amplify my pot of savings or my 401(k) or even my income fund that I’m going to pay myself from.” 

They want to amplify that quickly and nonperforming note investing is a great way to do that. There is also someone who is looking to do something good with their money. By investing in nonperforming notes, we’re able to make a big impact in a single person’s life. I see that as valuable because it’s more tangible. If there’s a family that lives in this house or they’re individuals that live in this house, by helping them keep that house, you are not only helping that family grow their wealth and their stability, but you’re helping generations after that because of the trends of homeownership that happened in this country. 

You are helping to maybe decrease this massive wealth gap that is developing because the people that own their own homes are right on the verge of developing that. They’re right on the verge of pushing through into higher income brackets or into higher wealth bracket. It feels like it’s a tangible way to help people. I liked that about it. Nonperforming note investing is great for people who don’t need access to their capital, but want to learn something new and want to do something a little bit different than what they’ve been doing in the past. 

What do you love and do not love about note investing? 

I definitely love that aspect that I just described, that we can make a big impact in people’s families. I love that I can run this business from anywhere in the world. I don’t like the fact that there are people out there who want to try to gain the system and believe that they’re entitled to keep this asset. They don’t understand that there are other people depending on those mortgage payments than themselves. There are other investors who are putting up their money to be able to do this and even the big banks. There are other things going on here. 

I don’t have to talk to the borrowers. That’s a huge point of risk mitigation for me. I don’t have to have those heart-to-heart conversations with them. My licensed and legal servicer team has those conversations with them and they know what to say. There’s a personal boundary there that’s important. What I don’t like about it is that there is this potential that borrowers can try to trick you or do what they can to keep their homes. It’s that gaming of the system aspect of it. There are always ways that we always have the house. We can always move towards foreclosure. There is almost never a situation. I say almost never because there are no ultimatums, extremes. We can always get back our investment and make a return on it. 

Connected to that, a separate question when you answering that question that came up for me that someone might be curious about is when you have a situation where you’ve bought a note, do you then have to put more money perhaps into that investment to the extent that you have to go through foreclosure, etc.? If yes, does that mean that when you go to sell the note, you would just recoup those additional capital injections? 

The answer is no. We set up our investments so that we have that as a reserve fund. We set aside a couple of thousand dollars as a reserve fund for the situation in case we need to move towards foreclosure. The largest expense that we might incur throughout the life of the investment is the foreclosure process. We set aside some money. We purchase the note with the rest of that capital that we have. We’re setting things up to ideally never have a capital call. We never have the time when we say there are more expenses than there are here, and that works fairly well. 

Any lessons learned from your experience in real estate investing in general or note investing specifically? Your choice. 

My first response to that is relationships, the good that we can do, and the furthering of all of our goals we can do when we stop and get to know each other a little bit more. Through real estate investing, it’s filling a part of me that I didn’t realize that I love so much, which is connecting with people and helping to guide. As a river guide, I would show people these beautiful places, but I would teach them how to paddle. I would help them learn about the space that they’re in. I would give them some skills so that they could go off and do it on their own later. 

I’ve learned from them, too. I got to meet all kinds of amazing people from all over the world. Real estate investing is we can all go a little bit farther if we take the time to get to know each other. That applies to even our borrowers that we’re working with, our team members and investor partners. Taking the time to build those relationships is hugely valuable. We can all go farther with our goals if that’s the main focus of our endeavors. 

Relationship is super important. Getting involved in all these different types of groups, the Goddesses and other groups help you in terms of building that network and meeting other people who are on their journey to build amazing businesses to help as well. With that, any other remaining advice or anything of that nature that you want to share at this point before we get into the level-up questions and close down the show? 

I don’t think so. I’m excited about the level of questions and the show stuff. 

These are my level of questions that I ask all my guests. The first one is what are you grateful for in your life now? 

I am grateful for the fact that I built my life on meeting so little. I came into my professional years as someone who didn’t need a lot to be happy. I lived in tents and I lived in an RV. I’ve traveled and I lived on suitcases. Now that I’m growing my wealth, I find that I can do that quicker because of these habits. The peace of having less around my house is something I am frequently grateful for.  

What would you say has attributed to your success and continuous growth? 

We’ve touched upon the networking there in a previous question, but I will go a step further into investing in mentorship and coaches. I was someone who felt like I couldn’t spend any money until I was making a lot of money. That’s for people who have already achieved some elusive success. The coaches and mentorships that I’ve invested in, our Goddess Program, and then new business coaches that I’ve had since then, too, have honestly made everything a little bit more exciting and pleasurable as we go. 

I have those relationships with people who’ve been there and who have done it. Their encouraging words and their advice is not just tactical information of suggestive steps of how to build processes and systems, which are there. It’s also that relationship of knowing that they see something in me that I know is in me as well. By having that reflected with a mentor coach makes me believe it a lot more. It makes me more excited to put in all this work to be able to make big impacts. 

What do you now know that you wish you knew at the beginning of your journey? 

LUR 68 Susan Elliott | Note Investing

Note Investing: Every individual note is a little bit more equivalent to an individual apartment in a multifamily building.


I wish that I knew and trusted that money can do a lot of good in this world. Wanting to make money and build wealth doesn’t make me a bad person and a greedy person. It makes me someone who can give a lot more of myself and my wealth to the world, and empower other people to do the same. I wish I had known that many years ago. 

Thank you, Susan, for coming to the show. If my readers want to learn more about you and your business, where’s the best place they can go to learn more? 

Head on over to our website. It’s The best way to do that is to join our investor circle because the first thing you’ll get is a link to my call schedule to chat. It’s all about those relationships. We take a lot of time to educate investors and our partners so that they understand the power of notes. I look forward to those calls popping in on my schedule. If you go to, then you’ll be able to submit your information to get in our investor circle. We open up our partnerships and funds to that investor circle first. 

Thank you, Susan, for coming to the show. This was so much good information. As a quick recap, we got into Susan’s background so you can get to know who she is beyond the note investing. We then got into note investing and all the jam-packed, lots of good information about note investing and how it works, and then reflecting on the things that she loves. The things that you must consider as well as the things that you shouldn’t be doing when investing in notes. It’s an awesome session. I appreciate it, Susan. Thank you. Until next time, keep leveling up. 

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About Susan Elliott

LUR 68 Susan Elliott | Note InvestingAfter a decade spent paddling whitewater rivers all over the world and realizing that even a dream Engineering job would not provide her the freedom she wanted, Susan found Real Estate Investing. She also quickly discovered that slaving away as a landlord prevented her from training for ultra marathons, exploring remote rivers, and taking her daughter on multi-day backcountry trips. She soon found the little-known world of Note Investing and two rock-star partners.

They saw the potential to build Flow State Investing into a business that created wealth for their families, their investor partners, and the homeowners who they helped keep in their own home. Today Susan educates investor partners about the wealth-building and positive impact of Notes, and how adding Note Investing to a real estate portfolio can help diversify and mitigate risk.

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