Irrational Note Exuberance?

Is it me, or are we experiencing Irrational Note Exuberance? We have been making a lot of bids in the last three months on 1st lien, and 2nd lien notes and it seems the majority of the bids are lost to others who are bidding more than us.

We are following a stair step pricing guideline I learned that increases the amount of the bid based on the value and condition of the property for 1st liens, and the status and equity position of the 1st lien when bidding on 2nd liens.

Now all that is thrown out the window. Where we use to pay up to 55-65 cents for nicer notes over $50k, now they are going for near $0.70 cents from some sellers. Lower price assets are also higher. At that price, we might as well just buy the properties at a discount from sellers on the open market for $0.70 cents on the dollar less rehab, as there won't be the plethora of fees, fines, taxes, and costs to foreclose you get with buying a rehab property.

And 2nd Liens that were priced $0.05 to $0.35 cents on the dollar, with $0.35 cents buying you a performing 1st lien with enough equity on the home to cover both liens, now I have seen three sellers asking $0.75 cents on the $$$!!!

So we are still making our bids at prices we feel we can make a profit on, though not picking up as many as last year. The biggest mistake is to pay too much for a note, then after doing all the work to get title if its vacant or the homeowner won't work with you, you end up with little, if any profit. I would rather walk from a deal than pay too much.

If you have questions about real estate notes, please feel free to PM me...

Christopher Winkler

The Note Whisperer

Silverwood Capital, LLC