Geographical Preference for NPN's

Tax Liens & Mortgage Notes
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Geographical Preference for NPN's

Andy Mirza
Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes

For those of you that are buying pools of NPN's, which states do you prefer to buy in and why? Are there some states with difficult laws/regulations that are better to avoid?

I assume that non-judicial FC states would be preferable to judicial ones. I also assume that the difficulty in one's ability to FC would affect what one would be willing to bid on notes from a particular state i.e. if it's more difficult to do business in state "X," the investor would require a greater discount on any notes he buys in that state.

I'm researching my own state (California) first, seems like a good place to start. I have experience buying at trustee sales but I know I have a lot more to learn from the "other side" since notes are not RE. The notes in CA tend to require a lot more capital so I'm interested in expanding my research to a couple of more states, especially ones where foreclosing/modifying isn't as difficult and the cost of acquisition per note is less. I'm interested in what the experienced guys here on BP suggest.

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Rick H.
Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
11y

I definitely have a bias for CA notes.

Understanding the collateral is essential. Having the ability to determine values efficiently and some ability to assess the property condition is important, obviously. I have friends who do both well allowing them to buy notes nationally and be pretty effective at it.

Not me, I'm lousy at this.

Now, add the legal element into the mix. I'm pretty up to speed on CA foreclosure laws. In fact, I'm a go-to source for many probate attorneys in my home state in this topic. 

However, go to a neighboring state such as OR, NV or AZ and, despite being non-judicial foreclosure states, I'm not confident enough to buy or lend and still feel confident that I'm sufficiently knowledgeable, at least not to my satisfaction. 

Go to a judicial foreclosure state and my already stretched level of patience would be tested beyond anything I can imagine. 

Since In my day-to-day biz I work a very tight nano-niche and mostly originate, I don't talk to many brokers.

As you're working with a broker, they have motivation for you to buy anything and everything they have to offer, regardless of location. Unless the biz profit model includes them having skin in the game, especially more than commission or fee-based equity, you may be left holding the bag. Or worse, chasing the bag. Just something to consider.

I had lunch and spent half the day with Ward Hanigan in San Diego yesterday. He still offers  training to a limited number of students (he's 75 now). 

Dave Van Horn in PA offered training at NPP, until recently. Gerald Lemoine in Garden Grove has a little group of note people that gather monthly in OC. Jeff Armstrong use to publish a few books on the topic.

And, of course, Gordon Moss has a little intro book ('Performance Anxiety') and I think he still offers a video training  course. He's a good friend and seems mostly retired as he's an avid surfer, boxer and sports guy. 

I think that you'll find all these guys helpful.

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  • Mike Hartzog
    Lender · Redmond, WA · Member since 2014 · 553 posts · 490 votes
    11y

    Andreas,

    There are many factors to consider, just like with traditional REI. The foreclosure aspect is one important criteria for picking geographic areas to focus on. Another is availability of notes. Many investors have cultivated boots-on-the-ground relationships in certain areas and they try to focus on those areas because they have local support for a deeper level of DD and help in dealing with REOs. You might also consider demographic aspects like population growth rate, median household income, poverty percentage, and crime rate.

    If you are buying from tapes, the fact is that you will find notes concentrated in certain areas, so tape analysis becomes the starting point.  If you find some deals that look good from a numbers perspective you can then apply the other more subjective criteria to decide if you really want to invest in those specific geographic areas.  The other approach is to identify areas where you want to invest, then cultivate sources of notes for those areas, for example, from local community banks.

    Here's a link to some foreclosure data by state with FNMA allowable attorney costs.  This list does not include foreclosure timeframe, but this one does.  Please note that the timeframe for judicial foreclosures can vary dramatically from these numbers based on volume.  Timeframes for deed of trust (non-judicial) states are fairly dependable.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    Good points Mike.

    If you're starting out, I suggest you invest in those notes in your own back yard first. I don't believe any state has modification requirements more stringent than the federal requirements or servicing, so a geographic area may not be relevant in that respect.

    That's scary to me, buying out of state NPNs from a broker or bank without having your own boots on the ground!

    It really helps to be very familiar with your collateral and the economic aspects of an area, knowing your area will be the easiest to learn in. Consider too, seller financed notes, they usually go at a much greater discount directly from the note holder, without slicing up the pie. Finding them isn't hard, after they are seasoned over a year, seller seem to be more motivated in getting rid of the note for cash. Select a good note to begin with, get it refinanced and watch your yield explode, the rinse and repeat. Good luck :) 

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  • Andy Mirza
    OP
    Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes
    11y

    @Mike Hartzog

     Thanks for the response and the advice. I'm planning to learn and invest from a note broker/investor and he buys from tapes. He sticks to certain states (non-judicial FC) and I wondered if others here do the same.

    @Bill Gulley

     I know that my note broker/investor contact avoids Florida specifically because he doesn't have boots on the ground or anyone in FL that could help with those loans.

    BTW, thanks for an excellent post you made in an earlier thread where you provided a detailed list on how to vet a note broker. I plan on using it....

    1Reply
  • Paul Birkett
    Specialist · Manhattan, NY · Member since 2013 · 116 posts · 192 votes
    11y

    One of the best things we did when we started was to buy a few loans with a couple of other guys who wanted to get into the space. We were all newbies moving from RE to paper. That transition is always going to be painful as there is a lot of learn. It can also be risky - if you made a newbie mistake you can lose money.

    Typically, I wouldn't recommend partnerships but this one worked really well. Why? Because it created a forum for debate - long discussions on due diligence, funding, what states to buy in, whether to buy first or second liens...just about everything you can think of! At the time, it felt like a disaster. Everything was taking too long, we missed some bids due to delays...there were lots of frustrating problems.

    We didn't know it at the time but in hindsight it was a great way to learn how everything worked. The note business is all about learning by doing. Sure there are a lot of rules but following the rules alone will not be enough. You need practical experience. Think of it like learning to swim. Sure you can read a "how to" book...but theory goes out the window when you jump in the deep end. Those painful strategy discussions were our water wings. We got to discuss every combination and permutation of outcome before committing to any particular action. Someone always spotted the weaknesses in an argument and we avoided making too many mistakes.

    Id suggest you partner up with a like minded person for the fist few notes and work together with them until you feel confident enough to strike out alone. If you can find a mentor - thats even better.

    Good luck, don't give up it takes time!!

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  • Andy Mirza
    OP
    Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes
    11y

    @Paul Birkett

    Thanks for the advice. I'm already headed down that path and I'm happy to have the availability of great advice from very knowledgeable people here on this particular BP discussion. I'm hoping to minimize the painful parts of the learning curve that you mentioned but I agree that, at some point, you've got to learn by doing. 

    0Reply
  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    11y

    I definitely have a bias for CA notes.

    Understanding the collateral is essential. Having the ability to determine values efficiently and some ability to assess the property condition is important, obviously. I have friends who do both well allowing them to buy notes nationally and be pretty effective at it.

    Not me, I'm lousy at this.

    Now, add the legal element into the mix. I'm pretty up to speed on CA foreclosure laws. In fact, I'm a go-to source for many probate attorneys in my home state in this topic. 

    However, go to a neighboring state such as OR, NV or AZ and, despite being non-judicial foreclosure states, I'm not confident enough to buy or lend and still feel confident that I'm sufficiently knowledgeable, at least not to my satisfaction. 

    Go to a judicial foreclosure state and my already stretched level of patience would be tested beyond anything I can imagine. 

    Since In my day-to-day biz I work a very tight nano-niche and mostly originate, I don't talk to many brokers.

    As you're working with a broker, they have motivation for you to buy anything and everything they have to offer, regardless of location. Unless the biz profit model includes them having skin in the game, especially more than commission or fee-based equity, you may be left holding the bag. Or worse, chasing the bag. Just something to consider.

    I had lunch and spent half the day with Ward Hanigan in San Diego yesterday. He still offers  training to a limited number of students (he's 75 now). 

    Dave Van Horn in PA offered training at NPP, until recently. Gerald Lemoine in Garden Grove has a little group of note people that gather monthly in OC. Jeff Armstrong use to publish a few books on the topic.

    And, of course, Gordon Moss has a little intro book ('Performance Anxiety') and I think he still offers a video training  course. He's a good friend and seems mostly retired as he's an avid surfer, boxer and sports guy. 

    I think that you'll find all these guys helpful.

    1Reply
  • Andy Mirza
    OP
    Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes
    11y

    @Rick H.

    Thanks for the advice and the recommendations. 

    Gerald's a good guy and I co-own a few NP seconds with him. They've done very well so far. It takes a while to work those out but the returns have been great.

    The note broker/investor I'm involved with now takes a different approach and thinks that NP seconds are too risky. He deals with NP 1st's and is more concerned about the velocity of money. I'm planning to work in his office full time in June to learn and to invest and JV with him when I feel comfortable enough with the process. I'm trying to learn all I can until then.

    1Reply
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