SCF 5 Ben Fraser | Note Investing


What if you can be like a bank and make a passive income stream off someone else’s mortgage payments month after month? You can do so by investing in notes. Dale Corpus’s guest today is Ben Fraser, the Vice President of Finance at Aspen Funds. Ben talks with Dale about creating passive income on your own or investing in a fund like Aspen. Join in the conversation and discover the difference between non-performing and performing notes, and which one’s for you. Tune in and start investing for passive income!

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Passive Income Through Note Investing With Ben Fraser

I’m back into the swing of things with my real estate sales businesses. I’m a full-time residential realtor. Sales activity has been tremendous in 2021. The majority of my home buyer clients are using leverage to buy a home, which means that they are getting a mortgage to finance the purchase of their home instead of paying it all cash. They put their down payment, whether it be 10% or 20% down to get a loan from perhaps a big bank or a local mortgage broker. The bank then uses the home as collateral for the loan. The borrower puts some skin in the game because they put some down payment money in the transaction.

The borrower signs a note with the lender, which is a promise to pay a certain interest rate over a certain time to the bank until it’s eventually paid off. The homeowner may want to sell the home prior to that mortgage term ending as they want to read the benefits of the equity and the profit in the home as the home appreciates. Perhaps they want to buy something bigger or whatnot. At the close of escrow during that sale, the homeowner will be paying off the mortgage that they’ve got from the bank. The entire time the homeowner was making mortgage payments to that lender, that bank was making an income stream off the interest that the borrower was paying.

What if I told you too that you could effectively be like a bank and make an income stream off someone else’s mortgage payments month after month passively? There’s definitely a way. This segues me into my guest. His name is Ben Fraser from Aspen Funds. He helps individuals invest in mortgage notes. They are essentially investing in debt, which may be newer for some of you but it’s a fascinating way of investing that I’m passionate about because I had been doing it for years. He is the Vice President of Finance at Aspen Funds and has helped raise over $50 million in private investment capital from individual and institutional investors for their real estate note funds. Prior to Aspen, he was a commercial lender and a commercial credit underwriter, underwriting over $225 million in commercial real estate and business loans. He is a contributor to the Forbes Finance Council. He is also a cohost of the Invest Like a Billionaire show.

Thanks, Ben, for being on this episode with me.

Thank you, Dale. I’m glad to be here.

How are you?

I’m doing good. Summer is in full swing. With kids, it’s busy.

For the audience that doesn’t know you yet, can you let them know where are you based out of?

When you buy a mortgage note, you become the lender. Share on X

I’m based in Kansas City. Our headquarters as Aspen Funds is here in Kansas City, the heart of the country. We have satellite offices in a few different places. That’s where most of our staff is.

I talked about the word notes. What are notes? People might not know what that is. They mean, “What is a note? Is that a mortgage?” What is that?

A note is a promissory note. It’s a shorthand for that. Basically, you become the bank. As an investor, you can invest in these individually or passively through funds like with Aspen. When you buy a mortgage note, you effectively become the lender. We all know there are banks on nearly every corner in most big cities. Intuitively, you understand that banks are making good money or else there wouldn’t be that many of them and it wouldn’t be the profession that it is. People understand it’s good to be the bank. Generally, they had the most protections. Your clients that are buying home finance that through a mortgage. They are signing hundreds of pages of these loan documents. Those are generally going to be mostly protecting the bank. As you invest in mortgages, a lot of those rights and benefits transfer to you as the lender.

What might be different for some people is that they don’t own the home at all. They just own the debt that was used to acquire the home. Correct?

Yes. It’s similar to any type of debt versus equity, investment or security. If you are on the equity side, you generally get the upside potential and appreciation of that asset. When you are a debt investor, you don’t necessarily have the same level of appreciation that comes from it but generally, you are lower on the capital stack. Meaning you are going to be in a more conservative position in that investment. In this case, the collateral that is backing your mortgage is going to be the home. You can invest in unsecured debt. Don’t do that if you don’t know what you are doing. With Aspen, all the notes we buy and what most investors in this space do is buy notes that are secured by collateral, which are these mortgages in these homes.

The way the mortgage notes work, people could either do it themselves, buy individual notes or invest in a fund like something that Aspen has. Can you talk about the differences between them?

It’s important to differentiate that there are different types of mortgages you can buy. The biggest categories are performing versus nonperforming notes. These two broad categories have different investment dynamics around them and return expectations. I want to throw that out there so that it’s clear what we are going to be talking about. If you want to actively invest, there’s a vibrant market for these types of mortgages. There are a lot of investors, whether they have been investing in real estate for a while or this is their entry point into it. It’s a unique way to invest in real estate, being more secured and a debt investor versus going out and doing a fix-and-flip model, holding rentals for cashflow or whatever the model is. You get a lot of the same benefits as compared to a single-family rental portfolio without a lot of the headaches.

SCF 5 Ben Fraser | Note Investing

Note Investing: The biggest categories in note investment are performing versus non-performing notes.


If you are the lender, you have a borrower who is the homeowner responsible for all the maintenance costs to upkeep the property. You don’t have to worry about tenants, backfilling vacancies, property taxes and insurance. Those are the responsibilities of the homeowner. From an investor standpoint, it’s operationally much more streamlined. Generally, you are going to have a homeowner who is going to be more invested in the property, making sure that it looks nice, upkeeping the property and being on top of all those things. There are some inherent advantages if you compare it to other asset classes but the big disadvantage, if you are an active investor is its work. As any active investment, it requires a certain amount of knowledge to get into space.

At a certain scale, it’s important to have the right licensing if you invest outside of the state that you live in. Every state has different foreclosure laws and regulations. It’s important to be aware of those. It’s because these are consumers and homeowners, there are Consumer Protection Laws you have to be aware of. There are things that if you are an active investor, you don’t want to jump in and try out investing in notes as a one-off thing. It’s something that you want to evaluate. Make sure it is a path that you want to take. Commit some time to invest in gaining the knowledge and resources necessary. It can be very lucrative.

The other option and a lot of investors choose this path, is going the passive approach. You work with a sponsor like Aspen or someone else that has all the infrastructure, staff and track record in a space like this, leverage their expertise and get a return as a passive investor. In Aspen, we have assets in over 45 states. We are plugged into a Federal bank charter. We get a lot of the licensing that gets pushed through to us. We deal with foreclosure in all these states and know all the nuances there. There are some economies of scale, basic knowledge and know-how to execute on these.

You talked about the two different types of notes, the performing notes and nonperforming notes. The assumption is that you guys underwrite them differently because they are completely separate. Can you talk about how you underwrite these notes to figure out what is a good deal?

I will start with the nonperforming notes. It’s where we started as a firm. It’s an interesting model. The whole idea is you go and you are buying a note that is not being paid, nonperforming. The borrower is not paying for some reason. The niche that we focus on is junior liens, junior mortgages or second mortgages behind a performing senior mortgage. It’s a niche within a niche, we call it. Speaking more broadly, the idea with this strategy is you buy a note that’s not performing. You go and work with the borrower to figure out how they can get back on track and not have to worry about getting foreclosed on.

The whole point is to either get them paying again and performing. You can season the payment stream for 3 to 6 months. You can sell that note back to the secondary market as a performing note to all these retail investors that want performing cashflow and the yield is still very good when you do that. The other is a settlement where they can take a chunk of cash and pay you off at a discounted amount. There are other kinds of ancillary strategies and, ultimately, foreclosure if needed. It’s important to know, which we haven’t done yet. One of the cool things about mortgage notes that makes all of this work is discounts. When you are buying a mortgage note, especially a nonperforming note, you are buying at a pretty deep discount.

In our case, we are buying the second mortgage around $0.30 on the dollar. If a borrower owes us $100,000, we can buy that for around $30,000. What that does is one, create a lot of margin for capital protection but then two, it also creates a lot of leverage and leeway that we can work with the borrowers. We can wipe out a lot of debt for them in many cases and still make a good profit. For us, that’s important. We don’t foreclose very often. We foreclose less than 2% of the time. Our strategy is to help them stay in the home, get them paying again and sell it off as a performing mortgage.

When things turn bad, the lenders come out with a lot less scars than the borrowers. Share on X

In that kind of strategy, the returns can be very lucrative. If you are buying something at $0.30 on the dollar, we are generally exiting debt at about 2.5X multiple from our costs. It’s a very large gross return. At our size and scale, we have a lot of operational costs, legal costs and other things that it takes to generate those returns but it can be very lucrative, especially if you have some IRA money and want to try it out. There are some ways to do that but it’s also very difficult as a retail investor to get access to the types of notes that we are able to buy. That’s one other disadvantage actively unless you are in the network. That’s the nonperforming notes.

Performing is a very different strategy where you are looking for a cashflow stream. A lot of people think, “The best place to do that is building a rental portfolio.” It’s difficult to do, especially where you are and on the Coast and where there are not great price-to-rent ratios or it’s more difficult to make the numbers work but it’s getting increasingly hard anywhere. You have seen all these headlines. A lot of big institutional investors are flooding money into the single-family rental space. It’s driving down cap rates and making the spreads even smaller.

Another great way to build passive cashflow is through mortgage notes. What we are doing is we are buying a performing mortgage at a discount. A lot of people think, “Why would someone sell a performing mortgage at a discount?” We are buying these generally from larger banks or institutions. The way that the banks are regulated is it’s a lost opportunity cost for them to hold onto these. What happens in a whole life cycle here is a borrower gets into some financial challenge at some point along the payment stream of the original mortgage that they took out. It’s generally something temporary like a job loss, medical crisis, divorce but something very disruptive and caused them to not make their payments current.

They go back to the bank to renegotiate terms because they want to stay in the home. They come to an agreement and start paying again. Now, they are back on track. It’s performing. The issue is from a banking standpoint and with my background being a banker as I was firsthand is, at that point, they have to classify that loan differently on their balance sheet. The regulators penalize them for having too much of this on their balance sheet. One, how banks make their money is they have to lend against their capital. When they have a loan that’s risk-rated higher, they can’t lend out as much capital. It’s a lost opportunity cost for them.

Secondly, banks are not drilling the business of wanting to take back collateral. If a loan goes bad and it goes to the workout department, that’s not a good thing and it’s not a profit center for them. For us, at Aspen, if you do this yourself and you are doing it right, taking back the collateral is a profit center for us. On the handful of loans that have defaulted in that portfolio, we have made a profit on average when we take a loan back because of the discount. That’s why the discounts make sense. The other cool thing with the discounts is it makes our yield high even though the borrower may only have a stated interest rate of 5%, 6% or 7% because of our discount. It makes our yield a lot higher and we can pay out a nice return to investors on a passive income basis.

When you guys are looking for notes as investments, is there a difference, whether the borrower lives in that property or not?

Yes. Hard money loans, I’m sure you are very familiar with those and your readers probably are as well. Those are generally loans to investors. A lot of times, bridge lending for buying a property to fix it up and then flip it out and/or to go into permanent financing. It’s the in-between financing while they are doing the improvements to the property. They have good deals, too. It’s another form of debt that is a nice cashflow and a good yield. The challenge in that business is it’s inherently cyclical. When the economy and construction are booming, that business does very well but when that turns and construction gets hit like it did in 2008 and 2009, that type of business struggles because investors are much more profit-minded. If there’s no more profit to be had in a particular project, they are going to hand the keys back to the lender. It’s the lender’s issue to have to go in perfecting their collateral.

SCF 5 Ben Fraser | Note Investing

Note Investing: With non-performing notes, you work with the borrower to figure out how they can stay in the home and pay again.


In our case, we almost exclusively buy notes where the borrowers are homeowners. The reason we like that is something we call emotional equity. It’s not a non-tangible thing but it’s powerful. We have seen it over and over again where the financial numbers may not make sense from the outside looking in but this is the home and neighborhood that they grew up, where the kids go to school and where they have a job that they can easily relocate for. Other factors are going on and then talk about all the social pressures of being foreclosed on. People don’t want that. We see a high-performance rate and a low foreclosure rate on average because most people in these scenarios want to stay in their homes.

In one of our presentations, we have some data we pulled from the New York Fed that did a survey. This was after the last real estate crisis. They surveyed a whole bunch of borrowers and homeowners, and said, “Why do you keep paying your mortgage if your home is underwater?” Meaning if the value of your home is worth less than all the debt that you owe on it. Intuitively, we think that doesn’t make sense but just because your home drops in value doesn’t mean you are going to stop making your mortgage payment. You still have a place to live. The number one reason by a long shot in this survey was, “I liked my home and I want to keep it.” It was a purely emotional reason for why they get pain in these situations. That’s something we look at.

Another underwriting hack that we look at when we are buying these performing notes is the comparable market rents. What we want is when our all-in payment with our borrowers has their principal interest, taxes and insurance is equivalent to or less than the market rent for a similar type of property in that market. What that does is create this buffer and stickiness factor for a borrower. If the switching costs to move into another property that they would have to rent is going to be more, then they are going to keep paying their mortgage. That has been another factor we look at when we are underwriting these.

I find that’s interesting in notes versus people that are flippers. Flippers rehab the property but the way you are talking is that in notes, you are working with the borrower and the first step is to keep them in that housing. You are like rehabbing the borrower, trying to make sure that they stay there and making it very worthwhile for them to stay since if they didn’t stay, they would probably be paying more in rent than they would by just staying in the home. Regarding performing and nonperforming notes, the yields on the two of them are different. Can you talk about that? What’s the difference in expectation for yields between the two?

If it’s a performing note, yields are going to range depending on if it’s a 1st or 2nd mortgage. We buy both 1st and 2nd in our performing note funds. The yields on a gross basis are going to be anywhere from 10% to 15%. If you are an active investor or you introduce yourself, those are some of the things you can expect. It’s great for passive cashflow. From our fund standpoint, we have all the management of those assets as a diversified portfolio. We pay our investors a 9% preferred return that’s paid out every month.

On the nonperforming note, there are two big categories there. It’s the 1st and 2nd mortgages in the nonperforming category. We focus on the second mortgage space. We will probably be getting into the first mortgage space down the road but the discounts are so much greater on the second that the margin is so much better. It’s where we have carved out a great niche and have a great product there. On a net basis to our investors, we are usually targeting at least a 15% to 20% annualized return. We try to beat that in our funds when we are doing those funds.

The idea of investing in a nonperforming junior lien is a unique niche. It’s very particular, for example, to ask them since that’s almost like their bread and butter. How did you guys come across that niche since not many people are talking about that?

The number one factor in note investing on the non-performance side is how much equity there is in a property. Share on X

The whole origin story of Aspen started with our two Cofounders, Jim Maffuccio and Bob Fraser. Jim’s background, he has been a 30-year real estate veteran. He has been all over the real estate map, as far as ways that he has been involved in it. For most of his career, he was a real estate developer for residential developments on the West Coast. He was doing well like a lot of people were back in 2006 and 2007 and then the last crash happened. He was doing a lot of specs builds. That market completely evaporated. He was using a lot of hard money at that point. He was working with his hard money lenders on these properties and headache after headache.

The light-bulb moment occurred to him, “The lenders seem to come out with a lot fewer scars than the borrowers when things turn poorly.” That was the initial spark that led him on the journey. He discovered real estate note investing and then this junior lien investment strategy. He presented it to Bob, who is a recent acquaintance, who is also my father. Bob has a background in finance, tech and raising capital. They raised their first fund just for friends and family to beta-test the strategy. The net IRR was about 24% in that first fund. That was with the two of them and one other employee working this out. Now, we have grown quite a bit. That was the whole genesis of it. We have continued to grow into space. As we’ve gotten larger, we get access to more opportunities. We are generally buying directly from larger institutions or one step removed from those institutions. It has allowed us to keep scaling with the same strategy.

To your question on why does the strategy makes sense, emotional equity has a big play in this. We target junior liens that are not being paid behind senior liens that are being paid. This is a weird situation for all your readers who have great credit and make a lot of money. Why would someone not pay their second mortgage? In a similar deal where a borrower gets into a financial challenge and wants to stay in the home, they will stop paying their second mortgage but keep paying the first with the assumption that the second position lender would not foreclose. That’s generally going to be true. One of those second-position lenders, it’s a lot more difficult. A lot of times, they don’t know how to foreclose from a second lot. They assume you have to pay off the first mortgage, which is not true in a lot of states. It’s a loss recovery at that point. A lot of times, it goes from current to nonaccrual status to charged off.

From the bank’s standpoint, they have charged off a lot of these assets on their balance sheets. What that means is they’ve written the value of these notes down to zero or near zero. When they are selling these, it’s a profit for them based on what they already wrote the value of the loan down to. It’s a gain on the sale of an asset. It’s good for them to get rid of these because we will pay something for it and it cleans up their balance sheets. When we are going to work with borrowers when they are paying their first mortgage, we know a few things intuitively and right away. One, they want to stay in the home or they would still be paying their first mortgage. Two, we know the home is occupied. Three, they have an income stream. There’s some way that they are making the payments.

A lot of times, what was the initial trigger for them to stop paying the second gets remediated. We can deal with them again on, “Let’s figure out what you can pay. Let’s get a financial package here. Let’s pull from your 401(k). Let’s talk to a family member to get a loan and pay us off and we will wipe out the debt for you.” If your credit has improved and there’s enough equity in the home, then you can refinance, do a loan consolidation and take us out. If they don’t want to work with us, we will foreclose. That doesn’t happen very often but it’s the protection that we have as a lender. That’s the whole idea there. We call it the velocity model where we go and purchase these assets in mass, and then want to work out a solution with the borrowers in a relatively short time frame that we can replenish our capital and go and buy more.

Going back to what you were talking about discounting when you buy nonperforming mortgage notes. I have a related question about that. How do you determine how much discount you can get and what’s a fair value?

It’s something that is an inherent challenge in a space like ours. That is what I would call a less liquid market. There’s not an active market like the stock exchange. You know instantly every second what the price is for this asset. It’s because of that, it creates a lot of opportunities for us because there are a lot of what I call pricing arbitrage or mismatch of the intrinsic value of these assets versus what the market is willing to sell them at. That creates a big gap here. Part of the other challenge in that strategy specifically is it asks when we fill this gap of a middle-market investment firm to where the junior lien space is too small for the big institutions to come to play in the sandbox because they are looking for the spaces that end with billions. This is hundreds of millions if we can get to that size and strategy but it’s limited.

SCF 5 Ben Fraser | Note Investing

Note Investing: Work with a sponsor whose track record is number one.


To also operate at our size, we have a lot of compliance, regulation and licensing that we have spent a lot of money investing to get to the place that we are at. It prevents a lot of more retail mom-and-pop investors from coming into that space. It creates this inherent gap in pricing. Specifically, to your question on fair market value, we underwrite a variety of factors. The number one factor in the space on the non-performance side is how much equity is there in a property because that’s going to dramatically impact the strategies that we can work with the borrowers. If we have a real deep equity note where there are a lot of equity above the first mortgage that fully covers our position, and then some, where we have margin if the real estate market crashes, we can use a lot of leverage to make a good solution with the borrower there. Ultimately, if they don’t work with us, we foreclose and we are going to get fully paid off.

A lot of times, we will use that as a means to an end of a good conversation with the borrower but if there’s less equity, then it limits what we can do and the risks that we are willing to take on that. We will price that much lower price per principal balance. It’s the metric that we use. We will have to pay a lot less for that because we are more limited in the strategies we can use with the borrowers, though historically, we make a lot of money on the ones that are even negative equity to minimal equity. We have a lot of those but that is a part of how we underwrite those.

The other big factor is the state that it’s in. There’s a big gap between judicial and nonjudicial foreclosure states. What all that means is how lengthy is the foreclosure process going to be in a particular state. There are certain states that we know what the process is because we have been through it. We will significantly discount the price on that particular asset because we know it can take up to three years to complete a foreclosure in Upper East Coast states. It’s something that we have to price into our model. Those are the real big underwriting factors.

As it relates to liquidity, how liquid or illiquid are the investments in your mortgage note funds? Is there a minimum time frame that investors should expect to stay in that fund, for example?

We have our two strategies, which are performing notes and then nonperforming notes. On the nonperforming notes, we raise those in closed-end funds. Meaning we go raise the capital from investors and deploy it into the assets. Over about a 3 to 4-year time frame, we work out all the assets in the fund until there’s nothing left. Throughout that time frame, we are returning a principal and profit back to investors. Those are usually a 4 to 5-year fund time horizon.

On the performing note side, we have an income fund. It’s unique because it’s an open-end fund. This is uncommon in the private equity real estate investing world where we allow liquidity after one year. We have a one-year lockup with a 90-day notice. We have a liquidity provision where you can request a portion or all of your funds out of that fund. It’s not a guaranteed thing but we have never missed it up to this point. We’ve got a lot of leverage we can manipulate to generate that. That’s a cool feature of that. Part of the reason is the performing notes. There’s a very strong appetite for those types of assets because cashflow and passive income are hard to find.

Does Aspen also work as the loan servicer too? How do loan servicing work with all these performing and nonperforming notes that you guys have?

Work with people who are confident in what you’re doing. Share on X

The whole servicing side of the business is not something that we’ve got into or plan to get into. It’s compliance-heavy and low margin. The cool thing is there are a lot of third-party servicers that do a great job. We work with them. It’s a minimal cost on a per asset basis. The servicers we work with are generally sending out the borrower statements and different types of communications to the borrowers on our behalf. They will collect payments from the borrowers and then remit them to us.

You talked about different states having traditional and nontraditional types of foreclosure laws. Where geographically do you guys focus? Where are you buying them? Is it all over or are there specific regions?

We buy all over. We have assets in 45 states. We are well-diversified. There are no states that we hard-line don’t buy-in. There are some that we are close to that line on where we don’t like them. Part of the challenge is you have to take what the market is giving as far as what the bank is selling. A lot of times, they are selling these in larger packages and liquidating a portion of their portfolio. How we get around at a particular state or area we don’t like as much is will apply and have your discounts to those. The cool thing in this business is we can underwrite these individually. Even if we buy a package of notes together, we underwrite and price them individually so that we have a sense of what we need to achieve on that particular asset to hit our internal benchmarks.

We are looking at certain states. If it’s going to be in New York, New Jersey or other East Coast states, we are going to discount those heavily. Surprisingly, California is a fast foreclosure state or relatively fast. It’s decent from a lender standpoint. A lot of the Midwest and Southern states aren’t too bad to deal with. You would be surprised some of the states are challenging. It’s something to be aware of. You have to price that in or else you have to price in your hold time and your whole period for foreclosure into your model.

Investing notes is a lesser-known way of investing that is not familiar to many people. Is there a certain amount of education for somebody that wanted to invest notes passively that you would want them to have before they decide that they move forward on investment even at Aspen?

First and foremost, we are restricted, per The Securities and Exchange Commission, that we can only work with accredited investors. That’s a proxy for how much risk a particular investor can withstand in their portfolio. The more net worth you have or the higher your income area you are, the more you will be able to withstand a shock to your investment portfolio. That’s the first gate that we have to look at before we can go to the next step. We work with a lot of real estate investors that have been investing in other asset classes like multifamily, self-storage, different affordable housing or development type of deals. They see notes as a complementary portion to their portfolio because it has some inherent advantages, especially the income strategy that we have liquidity plus a high yield we are paying out monthly. We have a lot of investors that use this to supplement their passive income.

We also work with a lot of investors that are getting new exposure to these types of alternative investments. There’s a bigger education process with them getting comfortable with the strategy, portfolio. Are we being nice to our borrowers? Are we kicking them all out and taking the properties back? There are some levels of investigation. We only want to work with people that feel very confident in what we are doing in particular. In general, it’s important to know what you are investing in, at least at a basic level. A well-known Warren Buffett quote is, “Invest in what you know.” Effectively, it’s, “Don’t invest in what you don’t know. It’s a shiny object syndrome where you hear about the latest investing craze or trend. Let’s also jump into that.” What are the actual utility, inherent value and strategy? How are they generating profits in that model? It’s important to understand at a high level what you are investing in.

SCF 5 Ben Fraser | Note Investing

Note Investing: Be communicative. Send out detailed quarterly reports and financial statements.


A lot of investors with us start small. I will call it, “Dip the toe in the water and see what’s the temperature like. Do I like working with these people?” This is the advice I would give to any newer investors stepping into these types of investments. Start small and build the relationship. For us, we are long-term-focused and relationship-focused. We are okay if an investor starts with our minimum and most of our investors invest more with us over time. It takes time. It’s that trust-building process. We send out comprehensive investor reports every quarter. It’s another great way to get educated on the strategy, what we are doing and how the portfolio is performing.

In a general way, education is important. You have worked hard to earn your money so you should work as hard or harder protecting and growing that. I feel like a lot of investors don’t do that because they have been conditioned to set and forget. “Let’s put it in the stock market and don’t think about it. My financial advisor will tell me how much I need and what I needed.” That’s not a good approach if you want a financially independent lifestyle, passive income or know where you are at.

Have you seen a lot of issues with the performance of notes since COVID? Some people in some states haven’t been able to make their mortgage payments. How has that affected the business and the funds?

I will break that question down by the strategy because it affected them differently. In the performing note strategy, we didn’t have a great sense of what it was going to be of how much our borrowers would stop paying or be impacted in their payments. In our model, we underwrite to a 30% default rate or delinquency rate so that we feel we can keep paying our investors, even with pretty substantial delinquency in the portfolio. We only generally see about a 5%-plus rate of delinquency at any given time. We have a lot of margins there that we could withstand. What we saw was an initial little dip and then quickly, our borrowers were paying in full. We collected just under 100% of our scheduled payments from our borrowers.

On the flip side of that, in that fund, because we are buying it at a discount, when a borrower pays us off through a refinance or a sale of a property and rates are super low and it has been a huge boom in refinances, it’s a profit for us. We have had a lot of refinances that have added additional income. That particular fund has performed the best it has ever performed ironically. Part of that is the strategy. Part of it is we have built out a good model. We are glad that it proved well through that storm there.

On the nonperforming notes side, it’s a little bit different because there was no payment stream initially. We have to generate an exit with borrowers. It has been this big divergence of some borrowers that were already okay, and then a lot of their money helped get people cross the finish line and are able to generate some great exits. Other ones, especially ones that are in deep equity where we will nudge people with a foreclosure notice or a notice of default with this like, “We are heading to a foreclosure unless we deal with this.” That happens fairly frequently but we rarely ever complete that. It’s just a means to have a meaningful conversation.

The issue is a lot of the states shut down their foreclosure offices and they weren’t doing foreclosures. There are still states that it’s all still pending. We have a lot of notes that are in these pending foreclosure status that we are waiting on. It’s a waiting game but it’s not a fundamental issue of return profile. It’s just delaying by a few months, usually in these scenarios where we are waiting on that. That’s probably the biggest impact. In our minds, when we are working these out, we move on to the next one, put that one, wait until it’s in ready mode and then work on the next one that’s ready to work. We have thousands of assets. We are not twiddling our thumbs by any means.

Start small and build the relationship. Share on X

Any advice that you would give to somebody looking to invest passively in the note space?

Passively, meaning working with a sponsor like us. Track record is number one. A lot of investors can over-complicate, “How do I know if this is the right sponsor or strategy to work with?” One, intuition is good. It’s not a perfect measure by any means but usually, you get a good intuition. The tangible stuff is, “What’s their track record? How they had done in their last deals? How they had done in the performance of their funds? How long have they been around?” It’s all of the basic important questions because past performance isn’t necessarily indicative of future performance. I’ve always got to say that but it’s a good indication.

Looking at the management team, the backgrounds of the key managers and the people that are operating that strategy, I feel good about that. The incentive structure is important. We are very transparent with the fees that we charge and the way that the waterfall is set up for how our investors get paid. It’s important to understand that because some strategies and sponsors may be very fee-heavy or will make their money on fees and other things, and not be incentivized to generate a good profit for investors because they get paid on the front end, not the back end.

The other thing that is a lesser-known thing that is important to me and is a good indication of what you can expect going forward. It’s looking at the sponsors and investor reporting. What types of reports are they sending out? How frequently are they doing that? For Aspen, we try to be communicative. We send out detailed quarterly reports, quarterly financial statements and investor statements of account at exactly where they are at with their capital and the profits they have been earning. We do annual shareholder meetings and other spontaneous webinars.

Get a sense on their front before you invest of, “Send me all your last year’s reports. I want to read through them.” How transparent are they being? What did they say a year ago in that report? How has that transpired? It’s a great way. They can tell you one thing but then go and see what they said. Did that happen? Were they conservative or not conservative? I feel like some of those basic things can give you a good inclination. Start small and grow over time. It’s good to have diversification. Build with the ones that you like to build with as they have proved themselves.

Ben, how can someone learn about you and your company?

If you go to, you can learn all about the current offerings that we have available. We have a lot of education and free resources there. I put together one that’s all about mortgage note investing, most on the performing notes side. It’s called the Mortgage Note Investing Guide. If you go under our Resources tab, you can download that. We are about to launch our podcast called Invest Like a Billionaire. It’s education around alternative investments like our strategy with real estate notes. One of the big focuses we are going to be doing is focusing on interviewing other successful passive investors. What has worked or not worked for them? What strategies did they like or did not like? Those are the kinds of things that we want to help educate people to build relationships with investors. The best place to start is our website.

For somebody in the audience, if they had further questions, what’s the best way to reach out to you?

It’s simple. If you go to our website, there’s a big button that says Contact Us. If you put a little note in there, it goes directly to me. I will see that. It’s pretty easy.

Those are all the questions I had for this episode. If any of you, readers, have any more questions for Ben, feel free to reach out to him through the Aspen website. Thanks, Ben, again for coming on this episode. Thanks for your time and all the value you provided my readers about mortgage notes. To my readers, thank you very much for checking out this episode of the show. Until next time, live life abundantly.


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About Ben Fraser

SCF 5 Ben Fraser | Note InvestingPrior to Aspen, Mr. Fraser was a commercial lender at First Business Bank specializing in government-backed loan originations (SBA & USDA), for one of the top SBA lenders in the nation. Prior to that he was a commercial credit underwriter for Crossfirst Bank, personally responsible for underwriting over $125MM in C&I and CRE loans across a variety of industries.

Prior to that, he worked for Tortoise Capital Advisors, a boutique asset management firm in energy infrastructure investments, and helped grow their institutional managed accounts from ~$3BN AUM to ~$7BN AUM. Ben was responsible for responding to all institutional RFPs from interested institutional investors.

Ben completed his MBA from Azusa Pacific University, and his B.S. in Finance from the University of Kansas, graduating magna cum laude.