All Forum Posts by: Jay Redding

Great Points Chris! Inexperienced investors often take for granted the valuation that is posted in the tape that you receive. Never ever do that. Many are nothing more than Automated valuations which can be way off in certain markets. We always conduct our own BPO, if we feel it is warranted, regardless of what the valuation may say in the tape. We give specific instructions to the agent conducting the BPO as to what we are looking for so they know what to look for in comparisons. We instruct whether we want "AS IS" value based upon certain assumptions that we provide or "ARV" (After Repair Value) once the property is fixed up based on other properties sold within the last 6 months that have been renovated.

My simple answer based upon the information that has been provided is a simple no.  Not worth the effort. 

Chris - We have had similar situations.  People are human and people make mistakes.  Automation is only as good as the input that is put into it.  You always have to manage the managers, which in this case is your vendors.  Out sourcing saves you time and improves efficiencies, but you certainly can't do it with a blind eye.  This is also true when working with SDIRA custodians as well.  

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.