All Forum Posts by: Paul Birkett

We just completed our Reg A+ qualification with the SEC in late November. In total, it took about 2 years to complete mostly due to the long delays at the SEC as they prepared their questions but it allows us to raise up to $50 million this year and next year which is a meaningful amount in the note space. All of that said, it took a lot longer and cost a lot more than even our lawyer's optimistic projections. And that's with in-house counsel handling 90% of the drafting. 

We view it as a long-term initiative to build the fund over time. 

The upsides: investor credibility (SEC qualification is very detailed), access to accredited and non-accredited investors, ability to solicit using advertising

The downsides: costs about $100k to get to the "start line". Significant marketing costs and compliance costs ongoing

Janden,

1. The world is full of frustrated architects. Many are my dear friends. They hate the long hours, unpredictable income and ungrateful clients.

2. Almost all of them learn that there is more money to be made as the "client" than as a service provider.

3. Almost all of them take years to learn these important lessons/facts.

So, you are already years ahead of most others in your profession. "Architect turned real estate developer" is a great way to start in RE. Yes, you can skip school and get to work....but you can also take what you learn and use it to your advantage. 

As to whether you should go or not go....thats a decision for you alone....but if I was me, Id find a way to do both. 

1. Learn the business on the weekends and evenings. My first intern worked for free for 6 months and now runs a multi-million dollar business from what he learned in the process. His student debt is a distant memory

2.  Go to college and work like crazy....with a view to becoming a developer/investor

You will find someone locally to teach you the business, raise a little money from friends and family and do your first deals. Use those funds to minimize student debt

Anything is possible if you work hard enough

Good luck

Paul

I was shocked to read this data today. Some say, its a market pause...some say its a momentary blip. They say employment is at all time lows, the economy is doing just great - GDP is growing in the mid-3% range. On the downside, interest rates are trending up...but still low by historical standards. Are you seeing this in your market?

Well @Gordon F. , back in early 2014, I was right about where you were.

I'd spent the weekends in Vegas at NoteWorthy and PaperSource. I had attended a couple of training courses too. In hindsight, they were more "show-business" than "how to" practical advice....but I didn't spend too much on them and I did learn a lot. All told, maybe I had invested $2,000.

Then I made a classic mistake. I assumed I could parlay competence from one arena to another.  I had enjoyed a long and successful career in corporate America. I had proven my skills in multiple markets over 20+ years. I had built up my sideline business of 30+ rental homes in 4 years and they were doing just fine. 

So, in search of better yields and less work, I turned my attention to notes.... I mean, how difficult could it be? I can run a DCF with my eyes closed, I can operate my 10bii in my sleep. I have a great lawyer and a great CPA on speed-dial. Whatever comes up, we can figure it out. Right? well, not so much...

I mildly underestimated how difficult it would be to build a note business based on what I knew. The real problems occurred with all the things I didn't know. Just like the analogy of the iceberg.....what gets you in trouble, is what lies beneath.

The question you are asking is a very important one. Fundamentally, pricing a fixed income asset is a function of variables like interest rate environment, loan performance history, loan to value, property characteristics, borrower characteristics, state-specific metrics and a laundry list of things you might want to include as variables in your model.  @Tim S. provides a comprehensive list.

Consider also that two investors armed with the same information might come up with 2 very different prices for the same loan. 

Maybe I have some process advantages or a ready buyer for the loan other some other advantage that will allow me to hit my return target more quickly than you (so I can pay up). Or maybe you have modest targets due to very low cost of funds (so you can pay up).

In short, what I'm saying is that there is no correct price for a loan. Like @Jay Hinrichs  says, you want to buy it at a discount but the extent of the discount you need depends on what kind of business are you trying to build. These are the fundamental questions you need to consider before buying paper (performing or NPL) or any investment I guess.

Apologies for the lengthy response but this is one of the most common questions I receive.

Hi Haseeb,

There is only one truly dependable way to find out what the tax situation is and that's to call the county and ask. Be careful....you want to know if the taxes are current and how they became current. In many counties a tax certificate could have been sold (thereby making the taxes current) and the county will not volunteer that information. You need to ask:

1. Are the taxes current

2. If current, who paid them - the homeowner or another party

3. If another party, who is that party

4. Is there a tax certificate sold and if so for what years (the owner may have paid some years but not others)

5. Is the homeowner on a payment plan. If yes, has the plan been executed as agreed. If not, what is the total outstanding balance and on what terms

6. Are there any other taxing authorities who may be assessing taxes on the property (some counties have city taxes and water assessments and school taxes and other local taxes - if you dont know to ask the operator won't tell you)

7. What is the next step for unpaid taxes

8. What is the process for delinquent taxes in your county (some sell tax certificates, some hire a law firm to collect, some put a lien on the property but don't pursue foreclosure)

9. When is the property likely to go to tax sale 

and 

10. Don't forget to check the local municipality for any building regulation offences, demo orders etc. They may show on the title report...but they may not...so check check check!

That should cover it

good luck

Paul

Hi Alex

1. Take a look at the top right corner of the 1st mortgage (get a copy from the county or the title report).

2. If it has a MIN number, you can look it up on MERS (mersinc.org). Set up a free account and type in the number

3. MERS may have the latest owner of record. Call them and ask if they are the new owner or ask who they sold it to.

Sometimes a new owner will not have recorded their assignment and you could be in limbo until they do. We have several like this....its just a matter of time. The more valuable the collateral, the faster you'll see a resolution!

4. Call the county and see if the taxes are current and who paid them last. They may have been paid by a financial institution, Corelogic, a servicer or an investor. Search for them by name on TLO

good luck

Paul

@Kevin Polite - that's fine but not sufficient. You need to get a formal title report to see what else is going on. Also, check that there are no building code violations if the home is in poor shape. You may only be concerned about county liens but there could be others that are not recorded (yet). You don't want to wait to get to closing and find issues later

good luck

Paul

@Kevin Polite, if they have unpaid taxes, there is a good chance they have other liens too. Ask the seller if there are any other liens on the home (second mortgage, mechanic's liens, township tax, school tax, city tax, municipal lien for water or sewer, any assessments or other liens against the property). If the answer is "yes" then you need to find out how much.  First, call the county and find out how much. If the amounts are low enough that the deal still makes sense, then get the home under contract (assuming you haven't spent any money on any of this and assuming it takes just a few minutes to do - I have no experience in this area).

Then pull title and check that you haven't missed anything (this step will cost you $150 or so). If title comes back clean (apart from the known items), you are in good shape!

good luck!

@Bob Malecki we use Autopal. Its a loan servicing platform (began as auto-only) and it does a decent job of recording and tracking information, documents etc. It has a couple of major weaknesses

1. Its not easy to set up or to use. The learning curve is steep and long....but you will find the same thing with Notesmith and Mortgage Office. They are also servicing platforms and not particularly suited to loss mitigation (in my opinion).

2. It doesn't appear to have any project management functionality - so we have a standalone workpaper to manage borrower contact and next steps for each loan. That works ok...but its highly duplicative. We are just not prepared to hire autopal to do the bespoke development for us - at least not yet. It might be inevitable but we will hold out as long as we can!

Some people use saleforce.com as a platform and build their own field-based system on top. That turns out to be quite expensive if you have a lot of users as salesforce charge by the seat. It also makes for a lot of scrolling up and down to find the data you need.

As @Darren Eady says, Note Servicing Center has a great reputation, they have been recommended to me several times. As far as I know they do not have a default operation and only handle performing loans but I may be wrong

I agree with Wayne.......

When we say "being finalized" we mean that the borrower has agreed the terms and is informing the tenants or is moving out of the home. There is always a risk that they change their mind at the last minute. That doesn't happen very often.

As the note owner, we will work with the home owner to make their exit as fast and painless as possible. Once they make the decision to leave and agree to the lump sum we pay them, they move on with their lives. For most borrowers, its a relief to close that chapter in their lives.