All Forum Posts by: Joshua Andrews

 Dustin,

Reach out to me, I may be able to help. This gap or equity type funding is exactly what we do. It's not cheap, but we do this frequently. Give me a call 480-438-6920.

I agree with the above posters. 

There is no real incentive for sellers to offer a warranty on a whole loan. For partials there can be incentive and it makes financial sense for both parties. Part of owning assets is managing risk, and seller's can't afford to warranty performance on an asset that has another 15+ year term remaining.

However, I do believe seller's should be honest with their sales and let buyers know up front if there are known issues or defects with the loan.

- Josh

I have completed a transaction on Paperstac and can say the platform works perfectly. There are always items with any transaction people will gripe about, but for today's market Paperstac does an excellent job. You can even escrow your transaction funds with a 3rd party which is a nice touch.

I have also met the guys who run Paperstac personally, and they are good natured, smart and looking to help the industry over the long haul. I will definitely do more transactions on the platform, and would encourage others to take a look and give it a serious chance.

I will be there as well. Looking forward to meeting everyone!

The answer is yes. All day long.

- Josh

Hi Daniel,

You will need access to cash to purchase notes.

This can be your own cash or partners/investors. It is a cash business. It is very difficult to use leverage starting out, but once you have a portfolio of performing notes, there are numerous ways to leverage or borrow against it to buy more.

Starting out with little to no money is always the hardest. You may be best served partnering with someone who has the cash, in exchange for you bringing the deals or doing some of the grunt work initially.

- Josh

Hi Mike,

Purchasing a 2nd position lien only gives you the note holder the rights to collect payments per the note and mortgage for that specific lien. It does not give you access to the 1st lien. If you wanted to foreclose on the 2nd lien, provided it was non performing or the borrower was in breach of the terms of the note, then you would foreclose exactly the same as you would any other lien. Use an attorney to perform the entire process.

If you foreclose you may end up owning the deed to the property (ownership) but the 1st lien will still be on title against the property. Meaning, you own the property subject to the 1st lien. This is not a bad thing in most cases, but something to be aware of going into the deal as you need to structure your planning around this.

- Josh

Yes if you own the note and the mortgage is on title.

Hi Tom,

I think the answer really depends on your overall goals. Notes of course do not appreciate like real estate, nor do they provide any real tax advantages or deductions outside of normal business expenses. For protection, equity is king. Having sufficient equity to ride out a financial downturn is important but you would be surprised at the amount of "emotional equity" people have to their homes, even when underwater. Just because something is underwater does not mean the borrowers will choose to walk away. Far from it in most cases.

Purchasing depends largely on what yield the investor is comfortable with. Discount is not as important. Don't get me wrong, discount does play a factor, but the main thing most investors are focused on is the yield, the interest your money is earning annually if the borrower pays to term as agreed.

Regarding a discount, and how much should it be, well this depends. Lets use an example.

• UPB: $80,000
• Rate: 3%
• Term: 360
• Payment: $338.09

Lets say you as an investor need a 11% yield on this note. You will need to purchase at $35,194.02. The difference between the purchase price and the UPB on the loan is your discount.

Now let's use another example:

• UPB: $80,000
• Rate: 7%
• Term: 360
• Payment: $535.20

To receive an 11% yield on this loan, you would pay $55,712.47 as the purchase price.

I say all this to mean that the discount is not the item to focus on, the yield is. Discount is nice but can fluctuate wildly based on the loan rate, terms and more.

To answer your question you can definitely invest in discounted notes to hedge your losses in a downturn. Is it foolproof? Definitely not, as with all investing. But you can significantly reduce your exposure to negative events.

BTW I am located in Austin. Feel free to reach out when you are in town!

- Josh

This is an interesting question. 

I think it depends if you own the property, vs having insurance for the existing 2nd lien.

As an example, we recently took back several homes when we foreclosed from the 2nd position. These are now REO properties. There is still an existing 1st lien on each property, most of which have escrow and insurance covering replacement value. We are not named as loss payee on these policies.

Currently it is our understanding is that since we own the deed (ownership of the property) if the property were to burn down or become a total loss, the 1st lien is usually covered for full replacement value. This would pay the 1st lien, and much of our remaining interest, though possibly not all. Our main concern has been liability coverage for events such as slip and fall, etc while we are evicting the current occupants or while a tenant is occupying the property.

What we have settled on so far, is to provide liability coverage (slip and fall) and a small replacement coverage policy for loans where we have substantial equity to lose if the home were to be destroyed in some manner. The cost to these policies are minimal, and worth the expense.

We do not insure all our 2nd liens, as this is not cost effective. Something that may be underwater does not need insurance, or if we purchased at such a low discount it's not worth spending money to insure it each year, unless you are passing that cost to the borrower somehow. For most performing 2nd liens, once you have them performing you can simply require the borrower to add you as an interested party or loss payee on the 1st's insurance policy. It's really no harder than that.

I think much of the determination needs to be from how much you stand to lose, and how much real equity you have.

- Josh