Buying 6 non-performing notes

On April I received a list of non-performing notes a hedge fund had for sale. I immediately identified assets I have not seen in the tape.

I copy the tape to my calculator and make a quick bid for 4 assets on the same day.

After reviewing the rest of the new assets I put in a bid for an additional 8 assets.

This hedge fund in particular only responds to bids once a week. After some 5 days, they came back with a counter on 10 of my 12 bids, and they did not respond to 2 of them (I guess they sold those to someone else).

This is when the real work begins.

I give a quick pass thru the countered offers and immediately drop an asset because it is a manufactured home and I still don't deal with those.

One of the assets was in my backyard, a 35-minute drive, so I put that one in the freezer, so when I have time I could drive and see it myself.

Once I order broker price opinions and perform due diligence, I have to wait for results, so I went to Saint Peterburg to see the asset. I already had an idea of what to expect, because it had 12,800.00 in fines from the city for code enforcement violations, but still, I wanted to see if there was any meat on the bone after paying the city if it got to that.

The trip was a great one, it left no doughts in my mind that there was no way to make money on that deal. The house had multiple tarps on the roof, the sidings were falling off and the house had paper curtains... 

After talking with my local realtor I passed on the deal. because even tearing the house down and selling the lot will leave no money to make it worth my or my joint venture partner's while.

Response from Due Diligence started to come in. I received the title report on an asset located in Indianapolis OH, the hedge fund had lost it to taxes. I was upset about that one because I already had an investor interested in the property in case it got to that exit strategy and a joint venture partner was ready to fund the deal.

But, no use on spending to much time crying for an asset lost and due diligence money spent to find out it is no longer available.

An asset located in Orangeburg SC looked very nice on my calculator, but the deal was killed when feedback from the realtor came in. The realtor was very knowledgeable of the area (we do a great job choosing most of them) and told me that house would take more than a year to sell. Furthermore, her broker in law had lived in that house and it was vacant at the time. That is a double red flag, vacant and long time to sell. Dropped.

What we did not drop.

We ended up buying six of the non-performing land contracts.

Indianapolis, IN: The broker likes the asset, he thinks the property is worth close to 90k. The numbers look good in every scenario, furthermore, it is very likely that the borrower will reinstate as they made a payment 3 months ago and is only 5 months behind.

I asked a realtor and friend to help me with the due diligence of this land contract and he ended up ponying up for this deal in exchange for 50% of the proceeds.

Morganton, NC: This house had very nice online pictures, in addition when the realtor sent me the drive-by pictures the house looked even better. As I was working the due diligence of this asset my wife saw the picture and ask me a few questions, later-on when I told her I was ready to buy the pool she asked me for this asset. She invoked wife privilege, nothing beats that card on my "LOOT" card game.

The broker price opinion was 85k, unpaid principal balance of 42k and monthly payments of 548. The borrower is 16 months behind, but they have made a payment two months ago. With all the pride of ownership in that house, I am pretty sure they want to keep it and I will help them.

Out of the six land contracts, two are in Columbus Ohio, which is a good thing. I love Ohio and have wanted to invest in Columbus for a long time.

COLUMBUS OH 1: The first house is occupied, has a big lot. The borrowers are 13 months behind on their payments and last paid 5 months ago. The unpaid principal balance is 30,033.87 and their monthly payments are 336.62. The broker thinks the house can sell for 60 and the market is really hot right now.

I am never sure how a note deal is going to end up, I always hope for a form of reinstating. Once we make right party contact we will know if we can help them keep their home.

I ran the numbers and they work either way for us, this deal is a keeper.

COLUMBUS OH 2: The second house in Columbus is worth around 100k according to my realtor. The house looks well maintained, those are signs of people wanting to stay. The unpaid principal balance is 24k and monthly payments are 289 a month. They are six months late and the last payment came in 3 months ago.

I don't see how they would not want to keep their house with the value they can earn if the pay the house off in one way or the other.

Columbia South Carolina: What stood out from this house during due diligence was that the realtor did not want to take pictures of this house, because there were people fixing the room and the owner was right by the door talking with them.

I could never buy without seeing, so I hired a company to take pictures of the house and they were fixing the roof alright. That is the most unequivocal sign that someone wants to keep their house.

The unpaid principal balance of this one is 24k and their monthly payments are 325 a month. They are four months behind and last paid two months ago. If I had to guess, I would guess this is an easy reinstate with a payment plan.

Last but not least is North Augusta, South Carolina: This is a duplex that seems to be occupied on both sides, monthly payments are 343.78, which tells me that by renting one side they can literally live for free. The loan is six months behind but they made the last payment one month ago.

This looks like another easy one to get back on track, but I would not venture to put my hand on fire with my guess, as note deals are never the same. Once we make right party contact we will know for sure how it will turn out.

We wired funds, now we will sit and wait during the silent period. In 20-30 days we will begin outreach and find out the intentions of the borrowers as they determine if they will keep their home.