Thoughts on buying this NPN?

Question

I am considering to buy this NPN. I have been successful in buying and profiting on notes and am looking to get back into since my REO supply dried up and there's no money in flipping properties right now. I offered the seller 50% of UPB but they want closer to 80k. Seems a bit rich for me, but maybe you guys disagree?

Lien Position: 1stNon-PerformingNote Type: MortgageLegal Status: ForeclosureUnpaid Principal Balance: $85,408.00Loan to Value: 54%Origination Date: Mar 1, 2021Original Balance: $87,137.00Total Payoff: $103,006.00Payments Remaining: 221.58Interest Rate: 9%Interest-Only Loan: NoPrincipal and Interest Payment: $791.76Escrow/Impounds $0.00Total Monthly Loan Payment $791.76Last Payment Received Date: Sep 7, 2022Maturity Date: Aug 1, 2040Accrued Late Charge: s$694.38

Approximate Value of Property: 140k/Located in Florida

Scott Matthew C. · Answer

@Chris Seveney Thanks for your perspective. I would make my bid on half of 80K and work my way up to what is comfortable for me. However, I agree with your approach and would bid at 55K and if I find anything during my due diligence that would suggest lowering my bid I would.

@Oriah B. Does this help answer your question(s)?

For those who are reading this thread. IRR stands for Internal Rate of Return, which is a financial metric used to calculate the potential profitability of an investment. It takes into account the time value of money and calculates the rate of return that makes the present value of the investment's cash inflows equal to the present value of its cash outflows. It is commonly used in real estate and other investment analysis to compare the potential profitability of different investments.

Chris Seveney · Answer

Thanks for tagging me. First thing that jumps out at me is how is the payoff $16k higher than the UPB when the loan is only 6 months behind? That to me seems very odd.

But lets run with that number and say you pay $80k for it. If you had to foreclose and the borrower did not contest (unlikely), The FC process would take approx. 12 months and by the time you evict and sell the property that is another six months. You will spend around $10k fighting with this borrower so at the end of the day you would may $15k over 1.5 years and be all in at $100k which is aruond a 12% IRR.

If the borrower files BK and makes the payments, over the long haul you are also getting a round a 12% IRR.

So to put this in perspective, you could give someone with 800 credit a hard money loan at 12% (and add points) or buy a loan where the borrower is defaulted, in foreclosure with significant risk and get less $.  For this loan I would be around $55k

Chris Seveney · Answer

@Oriah B.

Did you ever buy this note ? Curious how this turned out

Oriah B. · Answer

I used to own a MH park so I know the complexities of the asset class, but I generally discount the MH to close to zero. That being said it's in an area of FL that is known for their MH parks and in that market there is demand for them. Still, the numbers don't work for me.

Chris Seveney · Answer

@Oriah B.

Oh throw in a MH - is it affixed and has the title on it been closed out ?

I won’t touch MH assets anymore

Oriah B. · Answer

This is my thought process as well. I threw out an offer of around 45k but it was rejected. I was considering up to 70k, but considering the collateral (a mobile home), I am extraordinarily hesitant to pay such a premium. There do seem to be comps in the area to support the 140k price, but there just isn't enough juice on the deal for me at 80 or even 70k. I've decided to pass on it.

Scott Matthew C. · Answer

@Chris Seveney met @Oriah B.

Oriah, Chris Seveney has far more years of experience. I know enough to know enough but I still lean on others who have been before me. Chris's wisdom is a deep well!

Oriah, I would like to hear what Chris thinks of your opportunity. I'm sure he has other thoughts and suggestions. Obviously, due diligence still needs to be done, but from a bird's eye view, Chris, what are your initial thoughts?

Scott Matthew C. · Answer

Thanks for bringing my error to my attention. I wanted to add some value to @Oriah B thread for those who may not fully understand it. In my opinion, asking for 80K is too much, but it's important to also consider the market value of the property.

Scott Matthew C. · Answer

Hi @Don Konipol. Thanks for your post and providing general information about your opportunity.

I am not providing financial or investment advice below, just an assessment and opinion. However, based on the information provided, there are several factors to consider in determining whether this NPN is a good deal.

For those who are new to real estate investing, the term NPN stands for non-performing note.

In real estate, a non-performing note is a loan that is in default because the borrower has stopped making payments on the loan. This means that the borrower is behind on their payments, and the loan is delinquent. As a result, the note is considered non-performing.

On the other hand, a performing note is a loan where the borrower is making their payments on time and according to the terms of the loan. The loan is current, and the borrower is not in default.

Investors often purchase non-performing notes at a discount, hoping to either work out a new payment plan with the borrower to get them to start making payments again or foreclose on the property to recover their investment. Conversely, performing notes are generally considered less risky, but also offer lower potential returns.

@Don Konipol now that my explanation is out of the way, I can provide my opinion regarding your opportunity.

Firstly, the property has an estimated value of $140,000, and the unpaid principal balance of the note is $85,408, which puts the loan-to-value ratio at 54%. This seems like a reasonable ratio, although you would want to verify the property's value to ensure that it is accurate. The formula for the 54% LTV:

So, LTV = (UPB / Estimated Value) x 100%

LTV = ($85,408 / $140,000) x 100% = 0.6108 x 100% = 61.08%

**WARNING*** The original post stated that the LTV ratio is 54%, so it's possible that the author made a mistake or used a different formula to calculate the ratio.

Nevertheless, the interest rate of the loan is 9%, which is a decent return, and the loan is not an interest-only loan. The borrower has also made a payment as recently as September 7, 2022, and there are still over 200 payments remaining. This indicates that the borrower may have some intention of repaying the loan.

However, it's non-performing and in foreclosure, and there is an accrued late charge of $694.38. This suggests that there may be some risk involved in this investment.

Ultimately, it's up to you to assess the risk and reward of this investment and determine whether the potential returns outweigh the potential risks.

In summary, I recommend submitting a low enough bid that isn't too discouraging to receive a response. But, it's important not to exceed what you're willing to pay, especially if it doesn't align with your desired return on investment and could result in a loss that is beyond your comfort level.

@Don Konipol Nice to meet you. I hope my perspective has helped.

**What factors do you typically consider when making a bid, such as unpaid principal balance (UPB), total legal payoff, broker price opinion (BPO), or others? I would greatly appreciate hearing your thoughts and learning from those who are more experienced than I am.

Thoughts on buying this NPN?

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