All Forum Posts by: Joshua Andrews

I'm curious to hear how you determine property value when looking at a note to purchase.

If you are looking at a loan level purchase or even a small pool, what methods do you use to determine property value before making an offer?

Appreciate any feedback!

Josh

And I'm wondering why the @name isnt working? I must be doing something wrong.

@Bill Gulley

Man you spelled that out picture perfect. Thanks so much for taking the time to explain that for me. Makes a huge amount of sense. Things aren't always what they seem, and this has cleared it up for me. I like the idea of refinancing the note!

Josh

I've seen several types of calculations used to determine return on a note. One is the cash on cash method, and the other most frequently used is the IRR.

I am familiar with how to calculate both on typical rental property scenarios. However a little confused with the cash on cash calculation with regards to note income.

Obviously a note is a loan or mortgage, and as such has an amortization schedule. Because part of the payment is interest and part is a return on principal, are we counting both in the cash on cash calculation?

I am under the impression that a cash on cash calculation is only based on the "profit" or in this case the interest portion of the payment.

Is this correct? If not, why and which method of calculating return do you prefer as note investors?

Interested to hear your opinions!

Josh

Thank you everyone for the very detailed responses. I am truly thankful for the wealth of knowledge and experience here on BP. I'm going to read through this thread a few times more to get the full effect :)

Josh

Thank you all for your feedback and comments. Seems like it's a little tricky as to the actual follow through from the 2nd position.

Appreciate all your responses!

Josh

I'm a little confused about the term "subject to" when it comes to non performing 2nd mortgage workouts.

I've been learning about various workout scenarios possible with non performing 2nd mortgage's and I see you can indeed forclose on the borrower from the 2nd position, subject to the 1st mortgagage. I googled what subject to means and here's what Wikipedia has to say:

"A second lien holder can foreclose when a homeowner stops making payments to the second mortgage holder, even if there is no equity in the house. The second lien holder can foreclose even if the homeowner is making payments to their first mortgage holder. When a second lien holder forecloses, they do so subject to the first lien. The second lien holder may purchase the primary (first lien) mortgage (which may still be in good standing), but they are not required to do so. Regardless, if the second mortgage holder forecloses, this will result in the homeowner losing their home to foreclosure."

MY QUESTIONS:

1. If the property in question has zero equity or is actually underwater, and I initiate and follow through with a foreclosure from the 2nd position, what are my responsibilities to the 1st mortgage?

2. I'm assuming the 1st gets paid first and in a zero equity situation the 2nd nets nothing?

3. My actual costs would be whatever I purchased the note for, and any legal fees involved in the foreclosure, but I would not be obligated to buy or satisfy the 1st mortgage from anything other than the sale of the property correct?

If I understand this correctly, this seems a tool to get LEVERAGE on folks who are unwilling to do a workout on the delinquent 2nd. If they don't work something out, the 2nd can foreclose and the trustee sale will pay the 1st mortgage off first. Then if there is anything left the 2nd gets paid. So in essence I as an investor may lose the money I put into buying the 2nd and all accompanied legal fees, but the owner lost the home.

This would seem to be the case but I may be mistaken.

Would appreciate some clarification from more seasoned investors.

Thanks!

Josh

Yes I sure did Joe. I will have many more in the future of course :)

For now I'm going to start out buying performing and re-performing, then venture into non performing once I'm familiar with the basics.

Thank you all for the responses. I appreciate your feedback!

@Ellis San Jose

Thank you for that concise feedback. I think I understand the thinking behind the investment now. Tell me, do you find investors usually work their own non performing 2nd's themselves, or hire a company to do it for them?

From what I've been reading there is a very specific process to the workouts, at least to be effective. I've seen a few companies that have entire departments dedicated to the collection process for 2nds. Has anyone you know used a service like this with any success?

Thanks again for your feedback!