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Show Summary
In this conversation, Marco Bario, a note investor, shares his journey into the world of note investing, focusing on seller financing and the secondary market. He explains the process of creating notes, the appeal of seller financing for both sellers and buyers, and the legal considerations involved. Marco also discusses the growing interest in note investing as an alternative to traditional banking, emphasizing the benefits of cash flow without the headaches of property management. He concludes by providing resources for those interested in learning more about the note investing space.
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Investor Fuel Show Transcript:
Marco Bario (00:00)
So now I make about 300 bucks a month because I collect 675. paid 300 to my underlying letter, but I will never get a call that there’s a turnover.or that the electrical panel or the front door lock has to be replaced or anything like that, I will never get those calls. So to me, that was appealing. It’s cashflow without all the headaches that go with owning property.
Dylan Silver (01:53)
Hey folks, welcome back to the show. Today’s guest Marco Bario is a note investor who buys private mortgage notes from everyday sellers, helping them unlock liquidity while giving passive investors access to secured above average returns. He has a background in Hollywood film and television and now runs porch swing funding with a practical results driven approach to investing. He’s also published the seller financing Sunday newsletter.and co-leads the award-winning Nothing But Notes RIA Group, as well as Mid-Maryland Real Estate Investors and investor community out of Frederick, Maryland. Marco, thanks for taking the time today.
Marco Bario (02:32)
Hey, Dylan, it’s good to be here.Dylan Silver (02:35)
It’s great to have you on and I typically like to start by asking folks how they got started in investing but in the note space, I’m a little bit of a fish out of water so I’d like to start there. What got you into notes?Marco Bario (02:48)
I started going to real estate investor meetings. I used to live in California, so Manhattan Beach, California. There was a real estate investor group. They still meet. It’s for investors, by investors. I highly recommend it. And like all meetings, every month is a different topic. So the first month, I’m sure it was flipping houses. you know, of course I was going to do that. The next month, buying apartment buildings. Now I’m going to do that. And I’ll be honest, in Southern California, the prices are high.And for somebody starting with no real estate knowledge, it’s intimidating. that’s just more zeros. I understand at the end of the day, ⁓ but about four months in, when I’m thinking I need to pick something, there was a panel of note investors. And one of the things that maybe we’ll talk about it today about note investing is it’s even though technically you can invest out of state no matter where you are in, in, in most, most areas, but note investing in particular is pretty simple to invest out of state. So it was a good way to learn.
But a lot of things, because you’re exposed to a lot. When you’re involved on the paper side, it touches everything in real estate. ⁓ And it was easier for me to invest out of state. So for those reasons, it was interesting.
Dylan Silver (03:53)
I want to talk specifically about logistically what happens in this process. So you’re approaching someone who ⁓ is typically distressed. that accurate to say?Marco Bario (04:07)
It’s not. ⁓ for me, I’m targeted on seller finance real estate notes. And every year these days, the numbers change from year to year. But last year, for instance, there were about $30 billion in seller financed originations across the country. And about 75 % of those were one-offs, meaning that the seller had a property and they sold it. And seller financing, quick high level overview, just means that, Dylan, if I sell you my house, you can go to the bank or aprivate lender for a loan, third party, or we can work it out between us. You can bring a down payment to closing and we can agree on terms where you pay me in installments with interest generally for the rest of the money that you’re owed, that I’m owed. So I’d get a down payment plus a promise for you. The promise is a real estate note secured by a deed of trust or a mortgage. So those are seller finance transactions. And when somebody closes a transaction like that, they now have a different type of asset. They don’t have property, they have paper
that has value.
And those are what I target. They aren’t distressed. These are performing notes. These are seller carry backs. And I’m targeted on the people I call them mom and pops, the people who created one generally in one year, but, most of the time their whole life, you know, they had a, they had a home and for some reason, or a piece of land or a small building or something like that. They sold it and they carried back the notice as, as, people call it. And now for whatever reason, they want to move on. Sometimes they’re in.
Distressing their life and the need cash, but not all the time. would say that’s a little further down on the list, believe it or not. Most of the time, they just kind of want to move on from collecting payments. don’t want their heirs to deal with it. Maybe heirs have inherited and they and their siblings are splitting, you know, $1,200 a month four ways. And can we just sell this thing and move on? So I come in in those situations and I make an offer to buy the remaining payments or the remaining balance.
Dylan Silver (06:45)
Okay, so this is something that I’ve had a lot of people ask me and come to me, but not exactly sure how to get this ball rolling. I’ve had people come to me saying, hey, I’d like to make a seller finance offers, meaning they’d like to purchase a home on terms. But they’re not saying I’d like to create a note. So help me connect the dots here. It seems like when you’re doing what you’re doing, there’s some more legwork involved. What goes into creating aMarco Bario (07:13)
So I’m coming, my business is focused on the notes that are already created. That’s called the secondary market, but I’ll answer your question, but just to clarify. So secondary market is no different than buying a used car. If I buy it from the dealership, it’s primary. If I buy it in the secondary market, if I found it on eBay Motors, it’s the secondary market, if you will, even though it’s not called that, it’s used. So I’m kind of buying used notes. But to create a note, if I offer to buy your house and I offer terms,I say, you know, I’d like to make payments to you over time. I’m giving you, go back to that earlier example, maybe we agree I’m gonna give you $20,000 cash at closing and a promise for $150,000 for the rest of what I owe you. And we memorialize that promise with a promissory note. It says, will pay you X number of dollars a month. There’s an interest rate over this many months. It’s all due at this point in time in the future. And then we secure that promise with, depending on the state,
we’re doing the transaction in either a mortgage or a deed of trust. Essentially does the same thing. That’s recorded in the county records and shows just like a rocket mortgage, frankly, makes a mortgage. They get a promissory note and a mortgage. But I would give you a promissory note, which was a promise from me and a mortgage. And then that’s the asset that those are the types of assets that I buy.
Dylan Silver (08:37)
Now, typically, would these be properties that are free and clear or would would they have some type of, you know, first lien on the property already?Marco Bario (08:45)
About half of the notes that I buy are what we call wraparound notes, meaning that somebody sold a property and they agreed to accept payments, but they didn’t pay off, it’s called an underlying mortgage at that point. They didn’t pay off the existing mortgage. So it wraps it. And we’re not going to go, it’s a short call. We’re not going to go into explaining wrap notes, but all that means is when I’m talking to the note seller, they have technically a second position mortgage.But when I buy, let’s say the balance on that mortgage is still $100,000 on this underlying mortgage. When I buy, I might offer $150,000 to buy the entire remaining balance of the note. And we close through title. And when we close, the title company has instructions, pay off the underlying mortgage. So that goes away. We see it a lot now because of subject two, that became really popular. And then people would sell those houses on wraps because the underlying mortgage was never paid off.
somebody just had a mortgage in their own name and they sold it to somebody and they didn’t pay off the underlying. Those are the two ways generally a wrap is created. But at closing, when I buy the note, I just say $100,000 goes to pay off this underlying because I don’t want that.
I want to be in first position. And the remainder of the cash goes to the note seller.
Dylan Silver (10:39)
Now you’re in the secondary market. So is there ⁓ a marketplace for secondary market notes? How do you find notes to buy?Marco Bario (10:50)
Most of the people who listen to this podcast will recognize the process of trying to find off-market properties, And maybe you’ve done it, I know you work in real estate and ⁓ how do you do it? You send letters to people, you make phone calls to people, you advertise online, and you’re looking for somebody, ultimately, you’re looking for somebody that has something they don’t want or need anymore or would like something more than what they want, than what they currently have.So I’m looking for people who have a note that they don’t want or need anymore. They want something else more than that, either to be free from managing the node or, or frankly, a pile of cash. It’s really the same marketing process. I’m just looking for different types of people. may be looking for out of state landlords or people with tax problems or people who are older and have free and clear houses and, and, and, and don’t want to own the house anymore. Uh, I’m looking for people who want to move on from owning the note.
Dylan Silver (11:38)
Yeah.I have seen more interest, not just from investors in note buying and really taking the process outside of banks, right? Being your own banking ecosystem in a way, because just how hard it is to get into the on-ramp of being a homeowner, let alone a real estate investor. Do you see this?
idea of notes, creating notes, know, first market, secondary. Do you see this becoming more common? I think I’m bullish on it.
Marco Bario (12:21)
The numbers show that it depends on what’s going on in real estate markets and interest rates and with the economy. I would say about three years ago, there were roughly 24 and a half billion, if I’m remembering the numbers correctly, of seller finance originations. Well, interest rates are really low. It was easy for people to qualify to buy a home because to get a 3 % rate, the payment is pretty low. So the debt-to-income ratio has worked out. Why wouldn’t you go somewhat?to a bank or an institutional lender to give you a three or three and a half percent mortgage. But as the rates go up and real estate markets tighten, either because rates going up or other economic factors, employment, whatever have you, it’s harder for people to qualify, but real estate transactions still need to occur. So one way to grease the wheels of those is for sellers to offer to carry the note. Some of those sellers frankly become kind of reluctant seller-financers. It was the only way to sell the property. was a…
weird property and the bank didn’t want to finance it and the rates were high and whatever the story was, so they agreed to accept a down payment plus the remaining portion in installments over time. And then either right away or soon after that, they’re like, I’d rather just get some cash so they find somebody like me. So for that reason, the numbers have climbed up to about 30 billion. We’re still in a similar environment in 2026.
to what we were in 2025, I expect when we see the 2025 numbers, they’ll be at 30 billion, if not maybe a scosh higher. So for that reason, you’re seeing more of it. I don’t know that with the marketing muscle of the institutional lenders that you’ll see more people just deciding they don’t wanna work with banks at lower interest rates. They’d rather go do seller financing, but it’s a cyclical thing.
Dylan Silver (14:00)
Yeah.I want to pivot back and ask you a little bit about the ⁓ creation process of notes. I know you’re in the secondary market, but for folks who are looking to get into this space and are looking to, because I’ve spoken with so many people here recently, ⁓ really in every segment of real estate from single family to multi to even commercial who are interested in seller financing. Would part of this involve reaching out to an attorney who
can write ⁓ some of the contracts that are involved here or is this able to be done between the seller and the government body or the county that records the note and the buyer.
Marco Bario (15:39)
Depending on the level of professionalism, ⁓ the team for me always starts with either a title company or an attorney. And sometimes the title company is owned by an attorney. So you get two for one because they can help to draft the documents. Every local, every state and even down to local counties have certain requirements related to the documents. ⁓ So that’s a smart move.The next level above that, like for instance, I owned a rental in Memphis that I sold last year and I sold on one of those wraparound mortgages that I was just talking about. So I carried back the note. ⁓ I used a third party underwriter to underwrite my buyer, even though it was a business purpose loan. It’s not going to be owner occupied. And even though I was selling to an LLC, I went through all the steps to qualify the buyer.
In fact, I had that person give me a personal guarantee because I didn’t want to just be guaranteed by his LLC, which meant that he filled out a full 10, three loan application. Like any of us have filled out if we’ve ever applied for a mortgage and they ran his credit and they looked at his pay history. mean, his, his, ⁓ employment history and pay stubs and, and all that sort of stuff. Like you would, again, if you went to rocket mortgage, they’d look at the same stuff. so I have an underwriting file and to me that.
Makes me sleep better at night, but also makes the lawn worth a little bit more. So that’s recommended since we’re in an audience of professionals here. These are all real estate professionals who are going to listen to this show. These are advised practices. It’s not followed with a no Tuesday iBuy, but I’m dealing with a different audience.
Dylan Silver (17:04)
Yeah.Now, we talk really about the intersection between where sellers are, where they’re getting involved in holding the note, and then where investors are, you mentioned that, hey, this could be a situation where they didn’t sell their home, it was maybe high days on market, or there weren’t any offers, and so that they may be somewhat reluctant sellers, right? Is there another ⁓ segment of it where there’s folks who are maybe
Excited or gung-ho about seller financing and what would be the circumstances where that would make sense for them?
Marco Bario (17:46)
Well, back to my example. So I owned a rental in Memphis. I’ve never been to Memphis. I bought it through a turnkey company and it went okay. It was a small value house. We bought it for $54,000 in 2017 and a three bedroom, one bath house. And it was renting at the time for $9.50 a month. And I was cash flowing a bit. But frankly, it was a good turnkey company and they’d done a good rehab where they replaced the roof and the HVAC andkitchen appliances and all this stuff. But you know, time goes on and things start to break. And all of a sudden I got a bill, I don’t know, something help with the front door. I still don’t understand. And that was like 900 bucks. And then the electrical panel had to be replaced and that was like 1500 bucks. like, gee, and I cashflow just a few hundred bucks on this house. And every time this happens, not to mention if there’s a turnover, that’s another couple thousand dollars. Every time this happens, I’m cashflow negative for a while until I catch up. What if I just sold the dang thing?
And I got money because I, I, it’s a wrap. So I pay my underlying lender. I think it’s like $300 a month against a small value home. And I made a deal where I created this rap note and I collect 675 a month from the buyer. So I have a spread between those two.
So now I make about 300 bucks a month because I collect 675. paid 300 to my underlying letter, but I will never get a call that there’s a turnover.
or that the electrical panel or the front door lock has to be replaced or anything like that, I will never get those calls. So to me, that was appealing. It’s cashflow without all the headaches that go with owning property.
Dylan Silver (19:27)
cashflow without the headaches. I guess the counter to that would be, would there be buyers if you put it on market to sell it?Marco Bario (19:34)
Sure, yeah, somebody could have made a cash offer, but I didn’t want a cash offer. There’s some tax advantages. It’s called an installment sale in the IRS’s eyes when I collect the payments over time. It’s not like I got a bucket of money in 2025 and I had capital gains to pay plus depreciation recapture. ⁓ can spread the depreciation recapture. can’t escape that, but you can spread the capital gains out. People can look up IRS publication 537.Dylan Silver (19:48)
I got it.Marco Bario (20:03)
is the publication on installment sales that explains that. not going to give tax advice here.Dylan Silver (20:07)
Well, hey people, people will look into it now that you said it. So ⁓ thank you for your time today, Marco. We are coming up on time here though on the show. Any new projects that you’re working on or how can our audience reach out to you or your team if they’re interested in learning more about what you’re doing in the note space?Marco Bario (20:25)
The best way to stay in touch with me, I publish a weekly newsletter called Seller Financing Sunday, and I’m proud. ⁓ Every year there’s a voting competition called Best of Notes, and there was Best of Notes 2025, and Seller Financing Sunday won the best note-related newsletter ⁓ in that competition. Also, you mentioned in my bio the…The real estate investor group subgroup that I lead for Kory and RIA GC is called Nothing But Notes and we won that for a second year in a row. anyway, but my newsletter Seller Financing Sunday, go to sellerfinancingsunday.com and that takes you to the specific page on my website to sign up. It’s a good way to learn about what I do. It’s free, it’s educational, and then you’ll get emails from me every Sunday. And then after that, can stay, we can connect further if you’re interested.
Dylan Silver (21:14)
Marco, thank you so much for your time today. Thanks for coming on the show.Marco Bario (21:17)
Thanks Dylan.
