All Forum Posts by: Joshua Andrews

Hi Bill,

The question you ask is something I am always asking and one which I am also hesitant to answer. Just as in real estate the returns can be infinite, and with notes you can do so many wonderful things that boost returns. I will comment on my last few deals, which can give some idea of returns. Most of my deals are smaller in nature with equity backing them. I buy NPN notes and hire a very reputable company to work them out. They are also handled 100% by a servicer in my best efforts to remain compliant. My target for every note I buy, at least non performing is a minimum yield of 20% per annum. So far I have experienced yields of 25-45% depending on the deal. I would say an average of 25% is what I am used to seeing on my notes.

I have heard folks getting much much higher, but again I am only commenting on my own experience. You can of course get much lower depending on the deal. Those are just examples and I certainly would not use them as benchmarks of any kind, but just as general information. I hope that helps.

Josh

There is definitely a learning curve to notes which Bill and the others above have mentioned. It is not something to be taken lightly and requires study and real diligence. There are also any number of things that can go wrong in a deal. However just like anything else these can be mitigated (as much as possible) with the use of competent professionals as well as covering your bases as much as possible. Regulation and compliance should certainly remain high on the list to study as there is no use in building a business and then losing it to regulatory oversights on the part of the investor. 

As an asset class I really love notes. They provide flexibility and cash flow and staggering returns few other investments can match.

Josh

Hi Jeff,

I am not really sure what you are describing here. Is this an owner occupied single family home where the owner has a traditional mortgage and they are thinking of filing a BK? You mentioned "notes" plural, so I am a little confused. If you can clarify the situation we can be of more help.

Josh

Hi Chris,

Good points all. Thanks for the feedback I will take it to heart!

Josh

I have a question regarding modifying a defaulted 1st lien on a property. Here is an example. The original payment was extremely low, say $200. It was since defaulted on years ago, and now arrears have accrued. Is there anything preventing the note holder of working out a modification with the borrower where the monthly payment is MORE than the original payment they have defaulted on?

To be clear it would now be more because the total balance they owe would be more, etc. I have never run into a situation like this so I thought I would get some feedback. Thanks!

Josh

In my experience I am not aware of any other methods to confirm if the 1st is current and paying, other than the credit report or the borrower divulging that information. 

And I also forgot to mention, I prefer notes with equity. It's peace of mind.

Josh

Hi Tehseen,

I have had several successful workouts with NPN 2nds and love them. I also do NPN 1sts. The due diligence you need regarding this is to confirm the 1st is indeed being paid and is current. This is the biggest deal breaker on the note you described. If you cannot confirm 1st is current, it's typically something to stay away from. That being said, just understand what you are getting into. The home is underwater, and the 1st mortgage cannot be confirmed, which makes for significant risk. I have completed workouts on underwater notes before, and for all my limited experience they are based on emotional equity not on equity in the property. However just understand that if equity is missing it simply removes an avenue of exit from the deal for you, meaning you cannot really "force" the borrower to resume payments, although he likely will if the modification makes financial sense.

Don't let the fact the borrower completed a BK chapter 7 scare you. I like those. It means they have less debt now, and usually more money to pay you. The thing that would kill the deal for me is the fact you have no idea if the 1st is current or not.

The lien is not necessarily stripped in a BK. It simply means the owner is no longer personally liable. You cannot go after him personally for the debt. However the 2nd mortgage still has the right to foreclose and evict the borrower from his home, so that in and of itself is leverage.

With all that being said I would avoid this deal unless you can confirm status of the 1st being paid and current. Lots of other more attractive deals out there. Don't confuse a cheap purchase price with a good deal.

Josh

Hi David,

In my experience supply ebbs and flows to a larger extent with 2nds. Again this is just an opinion and what I see in the marketplace, but I believe there will be a supply in the coming years which will taper but not dry up completely. Will there be a wave of 2nds like there was several years ago, at rock bottom prices? Probably not. But you can always switch over to NPN 1sts. There will always be people defaulting on their 1st mortgages. It's just part of life.

Josh

Happy to give feedback! 

Josh