So whatdoes all of this cost?

Question

Hi everyone, so what does buying and selling notes actually cost in terms of transaction fees? Certainly there are transaction fees... What do brokers usually charge for a buy or a sell?  Also, what do note servicing companies or banks charge to service the note?

The answer may be “depends”, but humor me with some specific numbers you’ve paid, even if it’s a range.  I’m trying to get an idea of a pro forma P&L, and I honestly have no idea what the costs are, outside of the costs of the note itself and legal expenses.

Chris Seveney · Answer

@Gordon F. - Plenty of notes that you can buy without a broker. For doing due diligence you will order a BPO and an OE report then have an attorney review the report. Not including your standard overhead costs like software and systems etc. I would run $500 for due diligence. When buying a note you then have to record the assignment which costs under $100. If it is a contract for deed be careful on the state as you are physically buying the property and have transfer taxes etc.

Once it is boarded, there is a boarding fee of around $40 then you pay anywhere from $15-$35/month for performing notes (Depends on escrow and if it is a fixed or adjustable note). If it is non performing depending on the workout it can be $40-$95/per month. There are also many other costs that your servicer will provide on a menu style format. Every note is different so you will have different costs.

What I will say is if someone says the P&I is $300/month, you are not getting $300 a month, you have costs.

While many people disagree with me, I recommend to newer investors to either buy a performing note or JV with someone on their first deal if its non-performing because you will realize there is a lot of time involved and ancillary costs (such as you order the title report and there is a fatal defect on title - you may have just dropped $250 and not bought an asset). They also get to understand these costs because many learn the hard way because "they don't know what they don't know"

Gordon F. · Answer

Thank you, Natasha.  By work out costs, do you mean fees paid to the servicer to negotiate modifications or other terms in the scenario of non-payment, default, or other adverse situation?

Natasha Hunter · Answer

Most transaction fees I have seen are roughly 1-1.5% of the note. For servicing, As for servicing it ranges from $15-95  monthly depending on if it's performing or non performing and whether you elect to have escrowed taxes and insurance. Also keep in mind this doesn't include workout costs. I utilize Madison Management and they have a fees sheet you can take a look at on their website to see what some of your fees may be.

Derek Kirkwood · Answer

Roman covered the typical broker fee.  Other than that there is not much in terms of fees for the transaction itself.  If you are buying directly from the seller its as little as what your bank charges to do a wire transfer.  It's not like buying a property where you have thousands in closing costs.  The real costs are the ones Chris explained.

Roman M. · Answer

1% to buy or sell. Service fee depends if it's performing or not. Some as low as $15 per month for performing and could be as high as $95 per month for non performing

So whatdoes all of this cost?

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