Servicer from note one, or collect the payments yourself first to learn how it works?

Question

I manage properties, so collecting money from people who live in houses is my whole week. When I started reading about performing notes my first thought was that I'd just take the payments myself on the first one and see how the machine works from inside.

Everyone I've asked says use a licensed servicer from day one. The reasons I've been given: collecting on a mortgage can trigger licensing requirements that vary by state, there are federal rules about statements, payoff quotes and escrow handling, and a servicer's payment history is the record a future buyer will actually pay for. My own records in a spreadsheet are worth nothing to the next buyer.

The case for doing it yourself, at least as I understand it: a servicer costs $20 to $40 a month plus setup and boarding fees, which on a $450 payment is real money against your yield. You also learn what a borrower call sounds like, and you'd know your one borrower better than any call center will.

The case for the servicer: you're buying the passive part. If you self-collect, you've bought a small job with a mortgage attached. And the compliance surface is not obvious from the outside, so you can get it wrong without knowing you got it wrong.

I genuinely don't know which side I'd land on for one note. Anyone doing this at scale is using a servicer, that's clear. The question is the first one, where the fees are a bigger percentage and the learning is worth something.

luis_carrera · Answer

Months of reading and no purchase yet, so take the reading for what it is. The fee argument gets weaker the more I look at it. $27 a month on a $476 net payment is under 6% of the cash flow, and the record it produces is what a buyer prices off later. Losing 6% of cash flow to keep the asset saleable seems like an easy trade.

The learning argument is the one I can't dismiss. You do understand a thing differently after handling it once.

joe_delgado5 · Answer

Servicer. Not because of the compliance stuff, though that matters. Because the day the borrower stops paying you'll want distance between you and them, and you'll want a third party's dated call log and letters. I self-collected on a seller-financed note I created and when it went sideways my evidence was texts. Never again!

Servicer from note one, or collect the payments yourself first to learn how it works?

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