Where should a Note investor be watching?

Question

Hello BP! As I'm researching and learning about Notes, I get more and more excited about the idea of being able to invest in other markets besides 'my own back yard'! So I guess the question is, WHERE are the best cities to be keeping in mind (or the best states) for investing in Notes? I understand that maybe around 20% (according to one big note investor I just heard recently) of your Note investments will inevitably go through foreclosure and I understand that foreclosure can take a lot longer in some states than others. So I am wondering which cities I should keep on my radar as I continue in my research, and maybe look through some of the online Note Auction sites.

What do you think?

Scott Carson · Answer

I look at the population size....I prefer cities with 30K or more.   I also prefer owner occupied assets where the rent rate for the same property is higher than their existing mortgage payment.  I also want assets with zero to negative equity.  This way I take away the fight and its in the best interest of the borrowers to reinstate or modify with me without having to rehab the property.

I also want ADOM (average days on market) to be less than 120 days if I have to FC or do a DIL/Cash for Keys.  I also want assets above $25K (Prefer $50k+).   We also do a lot of Due diligence on the buyers via Whitepages.com, Facebook, Linked In and the internet.

I don't buy rural assets, mobile homes, or sub 1,000 sq ft homes.  We also call the local utilities to see if power and water is on at the address along with checking property taxes.   Appreciation is nice, but as long as I'm buying at 55% of AS IS values or less, I'm fine.

Scott Carson · Answer

@Glenn Willeford  I don't waste my time with 2nds.   I have bought some but only when they were the 2nd behind a first that I owned and it was often to help the borrower who was working with me on the front end.

There are a lot fewer 2nd's out there as not many have been created since 2008.  And those that are available are overpriced due to high demand.

I'd rather make sure I control the asset by being in the first lien position.  It's easier to raise capital for these deals, and I have a lot more exit strategies besides just having a larger pool of deals.

A lot fo 2nd investors are starting to get into 1st's or haven't bought any in a while.

Chris Jackson · Answer

@Scott Carson so what are the most important factors to consider when you're evaluating a market to purchase assets in?  For example, do you mostly concern yourself with the city's appreciation rate, rental -vs- owner ratio, population increase the past year...? Thanks!

Todd Walker · Answer

So @Scott Carson it sounds like to get the best returns and smoother business operations, you are willing to deal with the 60-80% of the time you wind up owning the property.   It also sounds like "2nd non performings with 1st performing and plenty of equity" may be rare like unicorn.  Agree ?

Scott Carson · Answer

@Glenn Willeford I don't invest in 2nd's.   I prefer to fish in the larger pools of deals.  2nd's are a very small pool of potential deals and currently there is little inventory and they are overpriced.

1st's are easier to raise capital for.  There is a lot more inventory.  A lot more exit strategies and I will always control the deal being in the 1st lien position.

Scott Carson · Answer

I think most investors need to focus on 5 states when they start off and add more as they grow.  Why five?  Because it will give you plenty of opportunities depending on your sources.   I'd pick 3 non judicial states and 2 judicial states as there are opportunities in both areas.

Out of 10 deals, you'll get 3-4 mods, 3-4 DIL's and the rest will be foreclosures on average.  I'll send a private message with some more info.

Scott Carson · Answer

While I would buy in most of the HHF states but I wouldn't focus on getting HHF's as my main exit strategy.  Most HHF states are only approving 10-15% of total applications.  It's great when you get it, but I only consider it gravy.

Chris Jackson · Answer

Okay - so I've found a NPN, 1st position, and they're asking a sub $10K price (which I can afford). The crime rate is low. UPB is $60K; this note doesn't list a BPO - eppraisal, zillow and homfacts are spreading it's value from $33K-$53K.  Looking on GoogleMaps, I can't get down the narrow street that the property is located on, but the general area doesn't look like a drug-gang cartel area. So say I was interested in this place. What is my next step? Call the court house on Monday and see if there are any other liens against the property? Get a title search done? I know a 'blighted property' is another deal-killer... but how do I determine that if I'm not willing to fly out to OH?  Higher a servicing company to send somebody to the property to take a look-see??

Chris Jackson · Answer

As I'm investigating more... it appears that all of Dayton OH has high crime and sex offenders galore!  Is this where all of the registered sex offenders go?  Some sort of vacation-area for them, perhaps?  =)

Where should a Note investor be watching?

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