Silverwood Capital LLC Case Study #11 Buyers Are Liars

This was the 4th note we purchased in May 2015, and its Silverwood Capital's 11th Case study. We will call it "Buyers are Liars."

Quick Summary:

• 1st Lien
• Non-Performing Note Case Study #11: Columbus, OH
• -4.32% ROI
• 208 Days

A lot of our 1st lien deals started out real nice. The property looked in good shape, and the homeowner was interested in working something out with us.

When we saw this 2 story home in a decent area of Columbus, OH and figured we would get the homeowner repaying the loan and at some time, sell it as a reperforming loan. We were also excited about the possibility of owning that sweet van! We purchased this note on 5/11/2015, and set out to make contact with the home owner.

Initially the homeowner wanted to work something out with us, so we sent a hardship package to see what she could afford each month, and waited to hear back.

We waited, and waited, and nothing; she went dark. So we started foreclosure. Since it was note #4, we still purchased it in the investors name, and we had no reserves, so we each had to constantly come up with funds for everything.

Again we used Peak Loan Servicing to handle the foreclosure, and again it cost us more than it would on our own. The firm they used was a bid firm & it was hard to reach anyone there for updates.

After foreclosure we inspected the property, and it was in poor shape. The roof had been leaking for who knows how long, the inside had not been updated in years, and all the upstairs rooms the ceiling plaster had become soaked and peeled off wood.

The house was full of her families left behind possessions, including children’s toys and furniture. And there is nothing worse than a fridge full of left over food. Rule to remember, never, ever open a leftover fridge or freezer, as the stench will kill you. Always secure it with a strap or belt to keep it from opening up.

The yard was not in any better shape. There was a lot of leftover personal items, and the yard was severely overgrown.

Once the junk hauled off, and the weeds cut back, it looked pretty nice, and we looked into getting it rehabbed to fix & flip.

We looked into rehabbing the home, and the numbers were pretty tight. Our local realtor was saying the After Repair Value (ARV) would be high $70k to $80k range. We also had a hard time finding a competent rehabber to do the work for us, so we decided to sell it As-Is. That was a big mistake as the rehabber who purchased the home did a stunning job rehabbing it and it sold for $122,000.00. :-(

Lets go over the numbers…

• Sale Price: $29,600.00
• Settlement Charges: $1,996.33
• Commission: $1,000.00
• Net: $26,003.67
• Note Costs: $11,500.00
• Taxes: $4,201.56
• Attorney, Foreclosure & Filing Fees: $6,756.57
• Due Diligence: $217.17
• Insurance: $1,132.40
• Servicing: $917.68
• Document Storage, Intake: $494.00
• Post Foreclosure Costs; Lock Change, Yard, Clean Out: $1,948.69
• Total Expenses: $15,668.07
• Profit: $-1,164.40
• ROI: -4.32% In 208 Days

Lessons Learned:

• It makes sense to find a company to photograph the property before you buy the note to see how bad it might be, don’t trust Google street view.
• Do not foreclose through your Servicer, it will be more expensive than finding your own attorney and supervising them.
• Get multiple ARV values from several Realtors, we took the word of one, and it was a mistake.
• Have the funds lined up to do a lipstick rehab if needed. This property is a perfect example, otherwise you selling it to a rehabber after foreclosing and cleaning it out means little to no profit.
• Do not put title in the name of your investor or his retirement account, we now put them in a Series LLC.
• Get a small reserve of $5,000.00 to cover the majority of the costs so you don’t have to keep going back to the JV Partner for money.
• Most of our early deals were lower dollar 1st liens that we sold As-Is after we foreclosed, and we could have done so much better if we put some lipstick on them.

Please contact me for more information on this loan, or working with us.