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Updated about 12 years ago on . Most recent reply

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7
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3
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Andrew Faulkner
  • Dallas, GA
3
Votes |
7
Posts

Dumb question about buying notes from newbie

Andrew Faulkner
  • Dallas, GA
Posted

I have around $250k to play with, and I'm considering buying notes off FCI. Can anyone tell me what I'm missing? Many of the 1st position notes (non-performing) sell for a fraction of the value of the property. It seems like I could buy one of these and immediately begin foreclosure proceedings and net a considerable profit. I understand that I'm oversimplifying, and that foreclosure is more difficult in some parts of the country than others, but nevertheless it seems like a no-lose situation. Of course I'd make sure there were no liens or second positions, or if there were that they could be retired and still leave plenty of equity in the property. I know it can't be this simple, otherwise the note holders would be doing it. I'm just wondering what I'm missing....

All this is to say, I don't relish the thought of taking someone's home, and I don't know that I'm comfortable profiting off someone's misfortune. In any case, any and all input is appreciated. Thanks.

Most Popular Reply

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29
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38
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Kent Anderson
  • Note Investor
  • Black Forest, CO
38
Votes |
29
Posts
Kent Anderson
  • Note Investor
  • Black Forest, CO
Replied

When I buy notes in default, a couple things come to mind.

First, I assume I cannot restructure the note to take advantage of the huge discount to benefit myself and the note seller. I try to figure the worst-case scenario and that would be taking legal action to foreclose and gain control of the property.

Thus, I require the large enough discount and a extra-large reserve to absorb the cost and time of foreclosure to acquire title via public trustee deed, gain control and cover the cost of repair, resale and, other unforeseeable expenses because you were not allowed access to the property before you purchase the note (mold, water damage, etc.)

Secondly, I require that the note is secured by real estate I know and understand. For me, that would be SFR real estate. Locally, I have the subcontractors to i bring the property back to marketable condition, I know how to market SFR houses with or without seller financing and local legal expertise if I need it.

In that regard, I would not know what to do with a stripmall… I'm not saying stripmall's are bad investments I just don't know anything about stripmalls. Therefore, invest in what you know.
As they say, the fastest way to lose money is invest in something you don't know anything about.

Third, and this requirement gets more important the older I get,(Ha!) I require that the security to the note is a reasonable distance from my office.

For example, It takes me an hour to drive to the south end of my County, visit with a sub-contractor for an hour, another hour to drive back to the office. Realistically, a half a day is shot. What if the property is three hours away or out-of-state? Then you're hiring out-of-state attorneys, contractors, title company, who don't have the loyalty to you like your local people do. More hassles, phone calls, researching, etc..… Something to think about.

Again, all this is assuming I cannot restructure the note and record a one-page note modification agreement. If this is true, then the note purchase can be a real feather in your cap.

Andrew, I am not telling you what to do but you do call yourself a "newbie" so let me say this; consider starting small so you can make small mistakes.

Good luck and let us know how it turns out. Kent

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