preREO - First Mortgage Secured by Vacant Property

[Mark S.]

As an investor in a couple of Jorge Newberry’s note funds, I came across one of his newer ventures: preREO.

I’ve heard him speak briefly about this on a podcast or two and am signed up to attend a webinar with them later this week.

The gist of it, the way I currently understand it, is they’re “partnering” with local investors who want to buy/partner on the first mortgages, go through the appointment process (through their sister company law firm) to be able to repair and rent out the property as it’s going through the foreclosure process.

The play is that rather than having to wait until the foreclosure process is completed, the investor can rent out the property (and earn a return - after rehabbing it, of course) during the process. Investor pays $2K program fee and 25% of the note acquisition price (they finance the remaining 75% via a participation agreement - at 12%). Supposedly, after signing participation agreement (I haven’t seen the documents yet), you can pay it off next day and essentially just pay 100% of the first mortgage acquisition price.

These are non-performing mortgages and the homes are vacant and in preforeclosure.

This doesn’t fit my typical passive, turnkey investment model, but I am considering taking on a local property as a “fun” project. The problem, other than this going against my philosophy of keeping everything passive, is I don’t think I’ll be able to get into the property to walk the inside prior to purchase and have no clue what I’m getting into. Sounds like a pretty easy way to get in over my head fast, but at the same time, it seems like an opportunity to pick up a property WAY under market value and there theoretically should still be plenty of meat on the bone.

Anyone familiar with this approach? Thoughts?