All Forum Posts by: Harrison Silverstein

 Hi Ian, 

As many here already mentioned, those institutional bank notes are difficult to come by. Its all about creating relationships with those institutions/funds. For individual investors this is usually hard to come by, and like Chris said, even if by chance they did want to deal with you, they'd be looking to sell entire tapes (which could cost a cool million give or take ;) 

There are communities out there that do have these relationships and all the notes I've bought in my 4 years of note investing have been from these banks and hedge funds. Private notes aren't bad, you just need to know what you're looking for when you're doing your Due Diligence. Education is key so you can start talking the same language as bankers. 

 The county could literally just pursue the same things, and not sell the tax as a lien. Just to name one. 

 Hey sir, nowhere did I talk about abolishing property taxes. I encourage you to reread.

They're abolishing the tax sale. @Nadine McAuliffe summarized perfectly. 

 Melissa!!! Great to see you here too! Thanks for the congratulations, hope to bump into you again sometime soon!

Hi everyone! Celebrating the recent success of one of my note acquisitions last year. Here's the full dirt on the whole investment:

Investment Info:

Non Performing Lease Option Contract

Single-family residence. Twentynine Palms, CA.

Purchased with a JV Partner - March 2021

Unpaid Principal Balance: $56,097.14
Purchase price: $50,487.47 + $2,659.00 Trade Desk Fee (approx. 90% of UPB)
Expenses: $10,183.10
Sale price: $175,000.00
Investment Period: 1 year
ROI: 176.33%
PROFIT: $111,670.43

Summary:

The contract was delinquent since 2019, expired in 2020. Our goal was to pursue legal recovery (eviction), but we also gave the borrower the option to purchase the property at $175,000. (ARV of the property ~$256,000 at the time of Due Diligence.)

Shortly after boarding the asset with the servicing company, the borrowers had asked if they could still purchase the property for ~$70,000 (the full payoff of their current contract.) Since their contract was delinquent & expired we did not give them that option, instead we offered them the property wholesale at $175,000. We gave them time to contemplate, but we did not hear back for some time. Once all of our assignments were in hand, we proceeded with legal recovery. 

(Our attorney later found out the borrowers were illegally renting out the subject property for at least 3 to 4 months. The tenants reached out to us after our legal notices were mailed to their address. They sent us the copy of their signed rental agreement with our borrower. Shortly after, the borrower called our servicing company and claimed that there were "professional squatters" occupying the home and that she "went on vacation" and after returning she has not been able to live in her home. She requested for help from us [the bank] to get the squatters out. Regardless of who was telling the truth, we have illegal tenants and a borrower that had not made a payment since 2019. We proceeded with removal of all parties [with atty recommendation].) I put this portion in parenthesis, because this entire discovery had no bearing on the outcome or process of our note, it's just good drama. We actually gave the tenants the option to purchase the home as well for the same price offered to the borrower out of consideration. 

About 9 months after acquisition, the borrower actually came forward with a combination of his own funds + outside financing to purchase the property. We paused legal action and proceeded with escrow. (9 months sounds like a long time, but in the meanwhile the assignments and deeds transferring ownership of the asset and collateral were being created and recorded, so we were in no rush.)

At first the borrower came forward to us with a realtor to negotiate the closing escrow. They presented us with a Purchase Sales Agreement (PSA) that comes standard for traditional real estate purchases. (Giving the buyer rights to an inspection, etc). Since they had been living in the home for something to the tune of ~7 years already, we let the buyer know we would be sending them our own "As-Is" Purchase Sales Agreement. (The buyer doesn't get the right to an inspection for a home they've lived in already, and we wouldn't be held responsible for the current condition; also buyer would pay for all closing costs.)

We had originally began with a traditional real estate attorney since we'd only need an eviction for this Lease Option. It turns out he was not equipped (or willing) to draft an "As-Is" PSA. He actually recommended we, "..get a realtor to help, since they're typically involved with these transactions". This was a quick lesson reminding us to not cut corners. Always use a creditors' rights attorney when working with notes, realtors are optional in our case. 

We got in contact with a creditors' attorney in CA and they immediately got to work on drafting an "As-Is" PSA with no issues. Having to do introductions all over again with another attorney wasn't ideal, and ate up some time and additional cost (paying prev. attorney bill was expensive even without completing eviction), but it still fit within our expense budget and timeframe for the note. 

We had to extend our escrow period a few times to allow the borrowers' lender to appraise the property (while also signing some required documents for the escrow company) and we closed escrow first week of April. Deal complete! $175,000 in the bank!

(Being prior enlisted in the Marine Corps, I was also delighted to complete this deal without having to set foot in Twentynine Palms again.)

What made you interested in investing in this type of deal?

The asset fit my risk assessment criteria. Confirmed through thorough and efficient Due Diligence. Lease Option Contracts are some of my favorite investments. My previous success story posted on BP was also a lease option. 

How did you find this deal and how did you negotiate it?

Part of the monthly inventory the Note Assistance Program releases to its members. I was not able to purchase the asset completely by myself, so I found a fantastic JV partner and we took it down together.

How did you finance this deal?

All cash from both myself and JV partner.

What was the outcome?

Borrower was able to keep the home as an investment property at a (fantastic) wholesale price, and my JV and I made an obnoxious return.

Lessons learned? Challenges?

Patience is a virtue. I love telling this story because of the drama associated with the illegal renting/squatting. (Gives landlords PTSD lol), but when we're in the note business, it didn't even phase us. We had to wait for our assignments to be created anyways, so the whole drama developing didn't throw any wrenches into our plan, we proceeded as normal. 

Additionally, the use of a creditors' attorney cannot be emphasized enough. We could have saved ourselves a couple thousand in attorney fees. Ultimately, we still did very well and still found ourselves in the +/- 1 year life of a note. 

P.S. - Not all note deals will be crazy returns like this, but these deals DO happen and are possible. Even "base hit" note deals can result with 61% ROI (per my previous post). Note investing can be some of the most efficient & profitable investments you make. 

 Mortgages, Lease Options, and Land Contracts (CFDs) are all ways to make money. If you break it down the processes don't really change much per contract type. 

In my view, they're all ways to make money, so I got comfortable with them. (not that there was much to be uncomfortable with in the first place). 

Not necessarily a shortage, it just depends who you're talking to.

 Hi Matthew,  
It is completely normal to create an entity for note investing. You do not want to be investing in your own name (think angry borrowers) 

However I would say the bulk of your "red flag finding" will be in the collateral. Quality of paper, terms of the note, title report review/collateral review. 

Lastly, making sure that the note you're investing in is correct for what you want out of it. (Cash flow vs lump sum cash payoff, etc) 

Most importantly before anyone could help, what are you looking to get out of the deal?

I was looking into tax liens and even tax overages a number of years ago. One thing that worries me right now is the possibility of NYC to abolish tax sales. If that succeeds, more states would probably soon follow. (Ultimately what pushed me into note investing as well) 

Before diving deep into it, the landscape could be changing quite a bit in the near future. It's already a competitive field, that may get even tighter. 

 Hi Mitch,

I currently have a Performing note in Dayton, OH. I wasn't originally planning on keeping it for the cash flow, but it quickly became one of my favorite investments to hold on to. If you're looking to eventually sell the note, having the contract underwritten by a service such as "Call the Underwriter" could help add value for those looking to buy.

Hi Luis, 

Starting out, I started my LLC in the state my first note investment was going to be. Everywhere else that requires it, I register as a foreign entity. Some investors have opened multiple LLC's in certain "difficult" states like Florida to ease some of the Judicial processes. But it's not necessary. (Given they had a big enough portfolio in the state to warrant an entirely new entity.