Note Investing: A Journey Through Time, Technology, & AI

How Tech and AI Are Transforming Note Investing: Insights from Rick Allen

Note investing has undergone a remarkable transformation over the past century, evolving from a hyper-local, manual process to a sophisticated, technology-driven market accessible globally. In this article, I’ll take you on a journey through the history of note investing, share my personal experiences, and explore how technology—especially artificial intelligence (AI) and smart computing—is shaping the future of this dynamic industry.

Whether you’re a seasoned investor or just dipping your toes into note investing, understanding the evolution and the role of technology can empower you to make smarter, faster, and more secure investment decisions.

My Journey Into Note Investing

My name is Rick Allen, and I’ve been involved in the note investing space for over fifteen years. My background is rooted in real estate, where my partner TJ, and I began buying and selling distressed assets back in 2005. Interestingly, we started when the market was booming and distressed assets were scarce, so we learned to identify hidden opportunities early on.

In 2012, after selling our real estate company and planning to take it easy with fix-and-flips and family time, we stumbled into note investing almost by accident. An REO agent reached out to see if we wanted to buy a note—a frame duplex in Winter Garden, Florida, with a mortgage balance of $90,000. We offered $8,000, and after some negotiation, closed at $8,400. We quickly realized the potential of this asset class when we managed to reclaim the property and resell it for $38,000 in just 14 days.

This initial success sparked a deeper dive into note investing. Despite being new, we self-serviced the loans and learned on the fly. We attended conferences such as the Five Star Conference, where we took a three-day class taught by Kevin Shortle, who profoundly influenced my understanding of the business.

Over time, we started acquiring larger portfolios, like a million-dollar trade with about twenty assets. However, we quickly encountered challenges with due diligence and documentation that were cumbersome and inconsistent, which led us to build Paperstac—a digital trading platform designed to streamline the buying and selling of notes.

Paperstac: Revolutionizing Note Investing Through Technology

Paperstac was born out of necessity. Early on, TJ and I outsourced development overseas, but the results were not usable. We then brought Brett Burky and Mike McLin on board—Brett spearheading business development and Mike, a talented coder, handling all the technical aspects.

Since its launch in 2017, Paperstac has facilitated over 2,000 trades, with 40 to 60 trades happening monthly. The Paperstac platform offers a secure, transparent, and digital-first experience where buyers and sellers can communicate, conduct due diligence, and close trades all in one place.

Some key features include embedded escrow and collateral management, digital closing with online notary services, and integration with loan servicers like FCI and Newland, providing real-time updates and fresh data. This integration eliminates outdated “tapes”—a term originating from magnetic tape readers used in banking—and brings note investing into the modern era.

The Evolution of Note Investing: From Local to Global

Note investing dates back to the early 1900s, initially confined to local communities where, for example, a farmer might owner-finance a property and then sell that mortgage note to a neighbor. This hyper-local approach was extremely manual, relying on phone calls, faxes, and handwritten documents, with virtually no audit trails.

As technology advanced, particularly with the launch of Web 1.0 in the mid-1980s, note trading expanded regionally and nationally. Banks began packaging portfolios and trading them more broadly. Email and spreadsheets replaced paper, making communication and due diligence more efficient.

The real game-changer came with Web 2.0 in the 2000s, marked by the rise of social networks and the smartphone revolution. The iPhone’s launch in 2007 accelerated digital adoption, shifting note investing to a mobile-first experience. Suddenly, investors could research, communicate, and transact from anywhere, anytime.

By 2010, FCI Exchange launched the first supervised online note trading platform, overseeing transactions to ensure smooth operations. While it was pioneering, it also taught us valuable lessons on what needed improvement—lessons we applied when building Paperstac.

Modern Note Investments: The Frictionless Fintech Era

Today, we live in what I call the frictionless fintech era, where note trading is becoming increasingly global and seamless. Investors can now access portfolios from across the world, including distressed debt from places like Ireland and Greece.

Platforms like Paperstac provide buyers and sellers with constant updates, digital audit trails, chat and call recording, and automated document generation. All of these features reduce friction and build trust, especially important when dealing with institutions that prefer consistent, scalable processes.

This standardization is crucial because institutions typically trade large portfolios and want to avoid the complexity of dealing with multiple small investors. Having a platform that mirrors institutional workflows opens the door for smaller investors to participate in deals they otherwise couldn’t access.

The Role of AI and Smart Computing in Note Investing

We are now entering a new era driven by AI and smart computing. These technologies are not just buzzwords—they are practical tools that enhance efficiency and accuracy in note investing.

For example, Paperstac uses AI to automate the drafting of loan assignments and releases. Instead of waiting days or weeks for manual processing, AI can extract data from previous documents and generate new assignments in seconds, drastically speeding up closings.

Smart computing encompasses cloud networks, mobile devices, and AI working together to create smarter workflows. Every user with a smartphone and cloud storage is already participating in smart computing. Paperstac acts as the interface that connects investors, servicers, and AI tools in one integrated ecosystem.

One exciting development on the horizon is the use of AI-powered search and filtering during due diligence. Imagine typing natural language queries like, “Show me loans with bankruptcy mentions,” and instantly getting flagged assets with potential risks. This capability can cut due diligence time significantly while still allowing for human oversight.

Expanding Liquidity and Market Access

The combination of digital platforms and AI has expanded liquidity dramatically. We regularly see portfolios ranging from a few hundred thousand dollars to multi-million-dollar hard money and home improvement loans being traded. Buyers range from first-time investors purchasing a few notes to funds managing hundreds of millions.

This democratization of note investing is bridging the gap between institutional and retail investors, making it easier for smaller players to participate in deals that once required vast capital and lengthy processes.

Looking Ahead: The Future of Note Investing

In the next five years, I foresee note investing becoming even more automated, transparent, and accessible. Paperstac is launching a new auction-based version of its platform, where sellers can drag and drop hundreds of loans, and AI instantly sources, indexes, and uploads the data for buyers to review.

Buyers will be able to perform complex queries and due diligence through AI-powered filters, significantly shortening transaction times. This evolution will continue to open up institutional-grade deals to smaller investors and facilitate larger, more frequent trades.

Tokenization and other advanced financial technologies may also become part of the conversation, though that remains beyond my current scope. What’s important is embracing AI and digital tools without fear, much like taking that first step into note investing.

Practical Advice for Note Investors

If you’re new to note investing or technology, start simple. Tools like ChatGPT can be invaluable for everything from drafting emails to creating Excel formulas. AI doesn’t replace human judgment but can handle repetitive tasks, allowing you to focus on strategy and relationships.

Remember, note investing is fundamentally a people business. Networking, learning from experienced investors, and building trust remain critical. Technology is here to empower you, not replace the human element.

Conclusion

Note investing has come a long way—from handwritten notes and local trades to AI-powered, global marketplaces. Platforms like Paperstac are leading this transformation by integrating technology to make investing faster, safer, and more accessible.

Whether you’re managing a few loans or hundreds of millions, understanding this evolution and leveraging technology will position you for success in the rapidly changing landscape of note investing.

Don’t hesitate to embrace AI and digital platforms. Start small, learn continuously, and watch how these tools can amplify your investment capabilities.

Happy investing!