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Hi there. This one's a little more in the weeds. If you're new to notes, stick with me — it'll make sense. If you've been at this a while, maybe it'll sharpen something you already know.
How I evaluate a note (the short version)
When someone sends me a note to look at, I'm running through a handful of things pretty quickly.
1. What's the rate? Owner-financed notes in the land space tend to carry 10-12%+. However, buying based on yield could still be 0% and if I buy it right, we still make our desired 15%+ on our money.
2. What's the remaining term? Shorter term + buying at a discount = compressed yield. That math only works if I can redeploy the capital fast. I generally want 5+ years on anything I'm holding for cash flow.
3. What's the collateral? I'm primarily in land and rural residential. If I wouldn’t buy the property, I don’t buy the note. We may have to resell if the borrower defaults. And First liens only. No second liens. Preferably deeds of trusts and mortgages, not contract for deeds - this is a liability play.
4. What's the borrower situation? Payment history. How long have they been paying? Is there skin in the game (meaningful down payment)? Someone who put 10-20% down and has been paying for 2 years is a different borrower than someone who put 3% down and is 3 months in.
5. What do I actually net after servicing? I use Terra Notes to service my own portfolio. But there's still a cost, whether time or dollars. Your yield on paper and your yield in-hand aren't always the same number. So we have to account for it.
That's the quick filter. Most notes get cut somewhere in steps 1-4. Want to see if it’s a deal I’d buy?
Check out the Deal or Dud Framework. Grab it here.
On the business side this week
Pricing changes are always something that makes people nervous, business owners more so than the customers I think. However, one thing I keep coming back to: most SaaS companies undercharge for the value they actually deliver, then wonder why retention is hard.
What I’m reminding myself of: If your product solves a real problem, it’s okay to price like it does. Cheap pricing doesn't attract better customers. In fact, I’ve found that it attracts price-sensitive customers, and those are the hardest to keep, and keep happy.
Not a hot take. Just what I've noticed.
Talk soon,
Jake
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