All Forum Posts by: Dion DePaoli

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We are seeking residential properties in Gary, Indiana.  Single and multi-family.  We will look at vacant or occupied.  Level of rehab doesn't matter as long as there is still some structure.  

We will even look at paper.  One off property and portfolio property offerings.

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I am a licensed Indiana Real Estate Broker.  License # RB16001279

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I would look at any performing loans from principal seller.  

 Can't see any listings on your site.  I would look at performing loans you can just email them to me.

I have bought construction loans before and would still do it.  That said, not all of them can be made into a deal.  Problem is the loan Seller's desire to recoup (or discount) their funds.  

Unfortunately, draws occur on construction loans and then work is not completed.  So there is a disparity between capital outlay and building progress.  This would lead us down the path of not agreeing on an AS IS value or a cost to complete.  

The next big issue to come into play is going to be fees and liens on the property due to partial work being done.  I have seen subdivisions rack up millions of dollars in liens from not having a good phase plan to avoid increased assessments and other local fees.  

All that said, these types of deals where some of our best margins and I know several investors who made a killing buying up these same deals.

If you have some or see some.  I am happy to review.

Brady, in line with your questions:

1.  How much time you invest in loan investments will depend on what type of loans you purchase.  There is a wide variety of notes to invest in.  Often times newbies get glamored by the idea of investing in NPL's and don't fully understand the capital and time commitment involved.  They are "high touch loans" even with a full service servicer.  Time is your enemy as servicing costs and advances mount up.  

The point of the investment is to make a return.  Typically investors want to make a nice return for minimal work.  Look to performing loans as a more passive path.  These will still take up your time depending on the amount of risk in each loan.  A paying borrower may from time to time have life events that prevent them from paying and may also require advances from a Mortgagee.  However, having some level of cash flow is better than having none.

2.  I am not a fan of partials.  They resemble securities that are not exempt from registration.  I am one of the most tenured and experienced loan investors on this board and I have never done or seen a partial deal.  My suggestion is stick to whole loans and stay away from partials.  

3.  The idea of getting a tape is clouded by folks misunderstanding how to find a deal.  The tape isn't the goal.  A loan tape is simply a list of loans and their corresponding data.  Loan data is supplied by any Seller wishing to sell their loan.  Whether that loan data comes to you in a spreadsheet or a file format is of no consequence to how good or bad the deal is.  Look for the loans not the tapes.

Never pay to get access to loans for sale.  That is silly and will be a waste of your money.  Spend that money on the loan you invest in not the chance to look at loan data that you may not invest in.

4.  There is no magic in mortgages.  That is my favorite saying.  A borrower can do one of two things (a) pay or (b) not pay.  If you are buying a loan in default plan on it foreclosing.  That should lead you to hopefully pricing the loan out correctly.  As a Mortgagee you have a right to preserve and secure the property to protect your interest.  Carrying insurance through the borrower or through Lender Placed Insurance will be your first line of defense against force majeure.  When purchasing said asset make sure you get current physical pictures to understand what the collateral is like as you invest.  During your ownership you can order property inspections to manage its condition and help mitigate any physical defects that will be a detriment to value.  

In regards to what sort of events can occur....ALL OF THEM.  Damage can come from any angle.  There is no way to predict if, when or what will happen.  Weather, vandalism, and owner damage can occur on any asset in any market.  Some markets are more prone to certain damages than others.  Vacant properties are more prone than occupied.  

There is more risk in defaulted loans than performing loans based on these ideas.

5.  Try using a bottle of wine and a nice dinner.  Don't invest the kid's college fund.   

Good luck.

The key idea here is what do YOU think is a good deal.  It seems you have a preconceived notion already.

I agree with @Bob Malecki, you only have enough capital for one loan.  Don't mess with two until you have more capital.  I would also bump your reserves to closer to $10k.  This gives you around $40k to spend on a loan.  Thus, you can look to collateral value around $60 to $100k.  

Using OPM is not something you should consider.  You don't know what you are doing, don't try and figure out what to do with other peoples money.  That's how you get in trouble.  

Where to find a note is an on-going task for any buyer of loans.  There are deals everywhere and at the same time deals that aren't really deals.  No one source is going to be a viable solution.  

IMO, Watermark is not where you want to go.  Loans offered through them are not owned by them and this can create issues with obtaining your files.  They will be happy to take your money before they figure out their Seller can't find the file.  

"Hedge Funds" are a mystical term used in this space more and more once again.  The investment firms who buy and sell notes are 99.99% not actual hedge funds.  Do not be enamored by that term.  Treat any seller as a seller and not some type of unicorn in the market place that you found the secret door to trade with.  Any given Seller will have either (a) a price you can transact with or (b) not.  It is as simple as that.  

As stated above, clarify what the 50% is based on. A 50% UPB trade in Texas would be a pretty nice margin. Be aware that the offer here may not be approved by the bank's committee yet. So, it is important to understand how firm or what approval process the offer will go through. A committee may not see the loan sale the same way this bank employee does and thus seek more money.

It sounds like the bank has, to some degree, codified a selling price (50%).  So next steps would be ask for access to the file.  You will want to get a title report to verify the lien priority and understand any other encumbrances on title.  That will lead you into most of your disposition here based on the story.

Paying for a loan comes after you conduct due diligence.  I wouldn't escrow any funds or put up any deposit to conduct due diligence.  Those are uncommon concepts in loan sales. 

The amount of time afforded to conduct due diligence is negotiated between you and the Seller.  You want sufficient time and access to the file to look into what you need to look into.  Then you will want sufficient time to review and agree to the terms of sale.  For a single loan you should be able to wrap it up within 3 to 4 weeks.  

Do not fall victim of negotiating two different assets here.  The value of the collateral is what it is.  You have your value.  The Seller will have theirs.  The only thing you want to talk about is what you are willing to pay for the asset that is for sale which is the loan not the real property.  When transactions start discussing both loan sale price and RE Value they get jumbled up and can fall apart.  Assume you won't agree on the same value of the house and just structure your purchase for the loan to suit your needs.  The Seller either takes the deal or doesn't.  You won't be able to persuade them to see from your vantage point.

I disagree with the idea above of moving toward a short sale solution.  This could backfire on you.  Depending on how the purchase price offer lines up if you take the deed from the Owner and then move to short the bank, the transaction could go in front of committee and be rejected.  That leaves you having to come up with more money than may have been originally planned.  

I would buy the loan and then deal with the Owner.  You can still do a DIL even if there are junior liens.  Doing a DIL in alternate company won't merge your interests as a Mortgagee.  This will retain a power of foreclosure for you wil gaining control of both the property and the loan.  In this case, look to control as much of this as possible as that will make disposition easier for you.  

Your attorney can review the purchase contract and perhaps order and review title.  Not too sure they will dig too far into the file outside of that.  From the post, the deal seems pretty straight forward.  Just remember, until it is done, things can change.  Don't fall victim to any party changing what you thought was going to be an agreed item.  

@Keturah Rucker it would be helpful if the post wasn't so vague.  

Steps to purchase a loan are different from managing a loan in its various stages of performance.  Working a performing loan is less involved than working a defaulted loan.  

Any information, when you have none or a limited supply will be helpful for sure but I advise to be careful not to group all loans and purchases into a cookie cutter template.  

Dispositioning a loan starts with good due diligence but good due diligence isn't, in and of itself, dispositioning a loan.  I also would not consider due diligence the same as the proper price to pay for an asset.  

The easiest loan to work with will be one that pays as agreed.  There just isn't much to do.  As loans fall into greater distress there are more moving pieces.  How to collect.  When to advance.  Bankruptcy risk.  Default risk.  All these and more will influence how well your efforts and investments will work.  

What do you think you are looking to invest in, in regards to performance of the loan?  

What is your risk tolerance for your investment?

What is your return expectation from the investment?  

How much capital are you planning on allocating?  

What do you think it means to "work a loan"?

Before newbies look for checklists of things to do, I find it valuable for them to answer those questions.