All Forum Posts by: Jay Redding

We do have a few.

Joe S. - We have found that each servicer has their own strengths and weaknesses.  We primarily utilize, FCI, Madison Management Services, Allied Services and Provident Loan Servicing depending upon where the loan is at, what we want to do with the loan, who the borrower is and how much follow-up we feel the borrower will need to stay on track. I honestly don't remember where that loan went to. It has been too long ago and to many deals ago.  

I purchased a performing note from an individual that was serviced by August REI and I had to literally tell the asset manager of the loan what they needed to do in order for the loan to be transferred. I don't know if she was new or what, but I had to provide step by step instructions on what their responsibility was and what they needed to provide to the new servicing company. The loan finally got transferred ok, but August REI lacked knowledge and speed. It was a slow process. That is my experience of 1, so my experience may be out of the norm. Not a good first impression however. We have no notes serviced by August REI.

Chris - Great catch!  Land contracts/contract for deed are easily missed in title reports. I am curious as to what other sources you use in addition to a title report to verify?

What about usury laws for owner occupied homes for firsts?  I have been seeing 12-13% routinely on seller financed owner occupied 1st lien position.  I recently did a short term fix and flip loan investor to investor loan for 6 months @ 5 pts and 15% interest rate.  Default rate being 20%.  

@Chris Seveney - Chris I know you know this, but sharing this for a lot of less experienced investors out there. We would all love to have that note that has 5 years of perfect payments, 800+ credit score and a 20-25% down payment.  The reality is that you will not find that in the seller finance space, and even if you do, there will be virtually no discount.  People have to remember that the seller finance space fills the gaps that the banks leave behind.  By definition, these type of loans are not the same quality as what is traded on wall street.  So if you make you buy box too tight, you will find very few deals that will fit your buy criteria.  Just because a buyer doesn't fit the bank criteria, does not mean that they are a poor borrower. In evaluating seller financed notes, there is always a balance between redeeming and non-redeeming factors.  You have to learn what you are willing to accept as not perfect, but good enough.  Example, a short pay history - non-redeeming factor, a 25% down payment, a redeeming factor to counter the short pay history. You have to evaluate if the borrower first has the ability to pay, then do they have the willingness to pay.  The more they have to loose, the greater the likely-hood they will work to continue to keep the home. We buy at a discount because these loans are not perfect, but will they pay is the question you have to ask.  Then to find inventory, you need to search out, i.e. network, and find out who is creating these type of notes or you help people that may have an interest in seller financing how to create a note that is marketable to the secondary market. Like anything else, there is effort that you have to put in.  If all you are doing is just sitting and waiting for tapes to come to you, you will eventually find some deals, but it will take a lot longer and you will have to kiss a lot of frogs before you find the princes.  We like the approach of helping people to create good notes that we would be interested in buying if they decide to sell.  You develop relationships with a handle of people that are creating notes and you help them recapitalize, it is like a conveyor belt of deals coming to you.  

@Wade Wisner -  Most of the notes that we purchase we keep in our portfolio and borrow against them with private capital. We buy at a discount and pledge our legal right to collect the debt (a collateral assignment agreement) as the collateral for the private capital loan we take out, which is backed by the value of the real estate securing the 1st loan.  Our investment to value (ITV) in the notes we purchase is usually in the 50-60% range, a significant amount of equity to protect our position and our private capital position. Our cash on cash return is essentially infinite as we make money on the delta between the yield of the discounted note that we purchase and the interest rate we pay to our passive private capital partners.  We invest in 8 states currently. 

We network with other fix & flippers teaching them how to properly structure a seller financed note so that it has value on the secondary market, we then buy a partial from them to take out most, if not all, of their cost basis so they can recapitalize and go do another deal.  This allows the fix & flipper to make a little money upfront, but a lot more at the back end when we reassign the mortgage/deed of trust back to them. Since you already know the metrics in the fix & flip game, this might be an avenue for you to consider. The partials we purchase are usually on shorter term notes i.e. 120-240 month terms and investor loans to other investors that typically put 15-25% down.  We work with experienced operators that have great reputations and are doing multiple deals at a time.  This approach does not work on every deal, but if they are doing 1 out of 3-5 deals like this, it really helps the fix & flipper to develop long term wealth, rather than just chasing the next deal for chunks of money.  Hope that helps!

As Jay and Jamie have stated above, a minimum of 6 different factors play into the pricing, but it is not an all or none issue.  There can be redeeming factors that counter balance a deficiency in a particular area.  An example, a small down payment initially, but the note has now seasoned for 60 months with on time payments documented by a third party servicer. At that point, the small down payment is a non-issue.  If the note was only seasoned 6 months with a small down payment, that is a much greater risk and would be reflected in the pricing. It also depends upon what the investor is wanting to do with the note as well. Every investor has a different game plan.  We buy seller financed notes routinely and would be happy to evaluate what you have. Feel free to reach out.  

Great Points Chris - Investing in general is all about managing risk.  Whether it be a real estate deal or a note deal, we always determine multiple exit strategies and what the downside risk is before making an offer.