All Forum Posts by: Bill B.

@Don Hines @Mike Hartzog @Bob Malecki @Dion DePaoli 

Thank you all for your replies.  Based on all that I learned from your posts, I've determined to do the following:

• I'm contacting the servicing company to determine if they provide Lender Placed Insurance and/or references to entities that do.  
• I'll also ask if the servicer does periodic inspections, and if so, at what cost.
• AND if the previous question is answered "yes", can they provide an address that will satisfy the Insurer's requirement.  (i.e. within 150 miles of the collateral property)
• I'm following up on the contacts Mike provided (thanks again Mike) so as to shop around as Dion rightfully suggests (thanks Dion for reiterating that successful REI is heavily dependent on controlling costs)
• My aim is to find a solution that does not require "local" contacts of any kind; AND has all the provisions that are suggested in your replies.  

The aim is to have vendors/systems in place to minimize the set up and maintenance of notes while we're working them out.  So, Dion, with your vast experience, it is comforting to learn that you've never had to provide a "local" contact.  

I think it is important to note that the insurer's terms requiring a "local" contact are specifically because it is a note transaction.  That is, if I was a landlord or if I was flipping the place, it is assumed that I'd have property management or someone running the flip on site; in both cases my "assets" would be covered.  With Lender Placed Insurance, especially on collateral for a non-performing note, there is no one on site who has my best interests at heart.  In fact, the borrower may actually want my head on a pike.

I've re-read this post a number of times and the points listed above are based on all the points you've all provided.  

Dion, Thanks again for the time and effort to provide so much detail.    

Thanks again to you all.

May you all have a Peace filled and Happy Thanksgiving. 

Hi BP Nation.

I have my first note.  I want to insure my investment with Force Placed Insurance.  I searched BP and found some great leads.  However, I've been told by the company I'm working with that I must have a "manager" or some other individual within 150 miles of the property that secures my note.  They want someone "local" to be able to check on the property.  That is logical and I can also understand how that may help reduce claims.  However, I'm in CA and the property is in OH.  I don't know anyone in OH.  I would really rather not hire someone in OH to fulfill this requirement.   Also, I can't believe that people who trade notes full time and nation wide have to deal with this.  So, with all that as background:

• Is everyone else fulfilling this requirement?  If so, how?
• Assuming that most note investors are not, what key word or phrase am I not using to get the "right" coverage?
• Are there providers that do not have this requirement?  If so, I'd appreciate some referrals.

As always, THANKS BP Nation!!!!

@Account Closed 

egg on MY face......

sorry for the embarrassingly lame question.

 May I ask what you mean by "yield hack"?  It implies (to my limited understanding) manipulation.  (or is the more acceptable term arbitrage???)

@Dion DePaoli 

@Will Barnard 

@Bill Gulley 

et. al.

I'm bumping this thread because it is a GREAT one for newbies.

Thanks to Dion for starting it, thanks to everyone else for perspective and contributions.

@Karen M. 

At the risk of adding to your angst; if you enjoy the stock markets, lower entry $$$ for investments that stocks allow, and rates of return that consistently dwarf stock market returns, you may consider notes as your REI vehicle. The grossly over simplified summary of note investing is that it is landlording without the toilets or the tenants. More accurately, you become the bank. So, you get the monthly income without the hassle of screening tenants or maintaining the property. You still have the security of the real estate securing your investment. And, if done properly, your rates of return can be well into double digits annually......WELL into double digits. @Jeff Brown is the oracle of investing in notes in ways that can pyramid returns with relative safety. Jeff will also say that you should know REI from a fix and flip or LL vantage before investing in notes (Jeff, forgive me if I'm incorrect and excoriate as required....I never want to put words in others mouths) but, if you can evaluate the underlying collateral accurately, and are willing to learn about notes and buying notes at a discount, then REI note investing may be the perfect blend between stock market-ish and REI returns that fit your lifestyle and goals.  It would fit perfectly in your geographic area for entry points and also allow you to "keep an eye" on the underlying collateral.  (i.e. the drive by)

I want to revisit the Ramsey thoughts.  He and you are correct.  Personal finance, done correctly is a force for good.  I think (without having read Ramsey, but knowing "of" him) that he is trying to swing the pendulum back away from debt for those who lost control of their financial lives.  THAT is probably why he seeks "zero".  For fiscally responsible individuals and families like yours, "zero" (I believe) is actually hurting your family. 

Stocks, managed well, are OK, but include risk. (especially in the last couple of weeks!!! who needs to waste money at an amusement park to ride roller coasters??!???!) REI, managed well, is also OK, but includes risk. AND the key sentence is that if you have money in the bank that will pay off the mortgage on your home, investing that at a return higher than your mortgage rate (easy when you stated your interest rate is < 4%) is actually enhancing your family's position instead of weakening it. Keep the underlying point made by Ramsey, that "out of control and imprudent debt" is a dagger pointed at the jugular of your family's security. Controlled, well managed, and prudent debt (that generates a return greater than the cost of the debt), that is kept at appropriate levels on your family Balance Sheet is a positive good for your family.

I'd suggest that you take a look for Jeff's posts in the forums and his blog entries.  Prepare to have your horizons vastly expanded.

Everyone must invest based on their personal circumstances.  Those circumstances include available time, available money, knowledge, and (very importantly) risk tolerance. The last two seem to be in short supply in your case.  AND there is NOTHING wrong with that.  We all start somewhere.

To add to the points made by others above, I'd support the previous suggestion that you find someone who knows the business and can help you run the numbers; has experience in evaluating properties; has crews in place nearby; etc.   YOU do all the leg work of the remodel AFTER they "bless" the property.  

Experienced people can tell a LOT from the outside and just looking in windows.  They also know how much cushion to build in.  A two minute review (NOTHING to rely on) says that the home is worth around 100K, maybe more for a top notch rehab.  If you can get the home for 40K or less, things could work out well.  

And HERE is the GREAT part: If the mentor says it is a great deal, money is not an issue. The Mentor may pony up; HML will line up (especially if you have a known mentor that they've previously done business with); it is easier to approach family and friends; you can just wholesale it to the Mentor for some easy cash and NONE out of your pocket; and there are probably more ideas that more experienced people here on BP can add. But the KEY point is money is much less of an issue if the deal is vetted by an experienced person and deemed good.

Stating is another way and from a different angle, having an experienced person in the greater Milwaukee area in on the deal provides a LOT of "peace of mind".  They are NOT going to go in on a deal that does not make sense.  Just meeting them at the property to review it and discuss the numbers (do a LOT of prep work on values BEFORE you meet with them....it is on a divided hwy, that knocks down price, etc) will teach you a LOT.  

AND, if (<--- see "IF") they say it is a good deal, your risk of doing the fix and flip just dropped like a led balloon.   You could do ALL the work (interfacing with the contractors, etc.......but, keeping the mentor informed of every step....having the mentor do onsite inspections at critical steps...) and offer them fifty, sixty, or seventy percent of profit as "tuition".  That cuts your return in terms of dollars, but you can't price the value of the knowledge (and peace of mind that an experienced person is watching your back) you'll have as you "get your feet wet".  

Also, experienced people will JUMP on a deal and WILL make it happen, if (<--- see "IF" again?) it is a great deal.   So, the short timeline is not an issue IF it is a great deal. 

I envy you living in an area where you can purchase a house, CASH, for what is barely a twenty percent down payment here.  Your risk is largely mitigated by that fact alone.  Your gross family income can purchase a decent/nice house in full.  Our gross family income is a fifteen or twenty percent down on a fixer.  

No "woe is me", just perspective for you.   

In fact, I want to stress that you are right and correct to be cautious. You can lose a LOT of money very, very quickly in REI. But, there are many, MANY ways to mitigate risk. The low housing costs in your area are a HUGE benefit to you and your family. Your family income and family frugality is another HUGE advantage, especially when combined with the previous point about housing costs in SE WI. Finding an experienced flipper in the area and showing them the deal and your available resources will substantially cut any remaining risk. There WILL still be risk. But substantially less than you "winging it" on your own.

Finally, if the mentor/partner idea is a non-starter, I'd suggest that you "get your feet wet" by loaning a portion of your risk capital to a flipper.  You may earn as much as 12% plus points. (I don't know the market in your area) And if done properly, your investment is secured by the real property, AND you are also building a relationship with someone who can do the mentoring outlined above in the future.  Double win.  Vet them as you'd vet any entity to whom you would lend money.  Visit previous projects, ask for references, etc, etc, etc.  

As far as the Ramsey method. I must confess that I've not studied him. But, having a loan on your primary residence (assuming that you have at least twenty percent equity in the property) is NOT a bad thing. Instead of paying it down, I'd be investing at a rate higher than the mortgage rate. Funding a HML at 8% or more should beat any return that you'd get by paying down a 4% (or less) mortgage. AND, the HML investment is secured by Real Estate.

Sorry for rambling.

I hope this is received in the constructive manner it was intended.

Good luck. God Bless. And Go Get 'em!!!! i.e. Just Start!!! You are in a far superior position to many newbies here on BP. Be cautious, mitigate risk in any and every reasonable way, but START.  You'll be glad you did.  

@Pat L. 

I must confess that I was surprised how it ended!!  I thought that it was an Ode to holding performing paper!!!  To be sure, interest is a double edged sword.  Mismanaged debt can destroy. 

@Jon Klaus 

I agree with you, but I'd add another target who desperately, DESPERATELY needs to learn this lesson; the United States Congress

@Mike Hartzog 

@Joshua Andrews 

@Dion DePaoli 

Thank you all for your time and effort.   I apologize for the delay in responding. 

The value of this thread is growing for everyone, not just me. 

Joshua, we completed all on your list with the exception of the reading of the note/mortgage.  Too late about the hair, though.  I was elected "Most Likely To Go Bald" in my high school class.   :-)

Mike, Thanks also for seconding the fact that I should have the files before the purchase.

Dion, I've always admired your thorough posts.  You list the issues and just as importantly, also the WHY of what you post.  So many experienced people put things out in forums and leave newbies wondering "why".  Your dedication to helping in BP could not be compensated.  While it is wholly inadequate, all I can say (again, and again.....on behalf of a LOT of people in BP) is Thank You for your time and dedication.

I must apologize, my paranoia may have tainted the thread a bit.  

Dion, my mentor has significant skin in this purchase. I doubt he received any kind of compensation from the seller. If he did, it is far, far less than the amount of his contribution to the deal. His entity and mine have a written JV regarding our mutually agreed terms for this specific purchase. If this deal loses money, he shares in that loss. That is something he offered freely and I would have required had he not. (Nothing focuses the mind like thousands of dollars being at risk.) So, his interests are aligned with mine. He has done several deals, but not hundreds or thousands. So, while he knows much, much, more than me, he is still learning, too. That said, he has never lost a dollar on a note. I trust him, but I also subscribe to that Reagan mantra, "trust but verify". I go to BP for the verification because there is no better place than BP for access to such a substantial pool of experience. And so that mantra and access to BP has yielded the detailed and very helpful points in your post.

I'll not list the site, because (again) my paranoia may have tainted the thread a bit.  

Also, it is a well known and trusted entity.  I don't think they'd have the reputation or recognition if they were charlatans.  I'll not risk tainting a hard earned image on one transaction where my learning curve is pure vertical.  To be sure, I'll be speaking with the site and my mentor about having access to the collateral file during DD and before purchase, now that I know that is the standard. 

Dion, if the collateral file is a complete bust, I'll be going back to the seller to give him a chance to undo the transaction. I fully understand that my contribution to the JV is fully at risk now. That said, I'm going to give people the chance to do the correct thing.  I'm assuming they did not have foreknowledge of a seriously flawed file....again, they are known and accepted as a reputable entity.....I must give them a chance to prove that again before posting on a forum in BP in a way that could damage their reputation.  If things go south and they are not interested in reversing the transaction, then I'll respond accordingly.  Starting here on BP.

Also and very importantly, there is sufficient equity in the deal to cover any costs associated with a "normal" (that word being used in the broadest possible way) workout and exit.

Dion, I cannot thank you enough for your generous offer to review the file.  If things start looking like I have been had, I may take you up on that offer.  I'm going to proceed with the assumption that the seller is reputable for all the correct reasons.  

Without going into details, your posts are not the reason for my unease.  My paranoia is born of very humble beginnings, and an uncanny ability to snatch Defeat from the jaws of Victory.  I've spent my entire life stretching, striving, and at times even jumping....always with the result of brushing the brass ring with the end of my fingers, but never being quite "good enough".  No sympathy wanted.  I'm asking that this last point not even be responded to.  It is just trying (with poor results) to frame my caution/paranoia. 

The facts of my life are pointing me to investing in NPN. I MUST learn this. All three of you, and especially you, Dion, (again, your detailed backgrounds and the "whys" are so valuable to a newbie like me, please don't ever stop contributing to BP) are helping in that learning.

Thank you all.

Bill

@Joshua Andrews 

@Mike Hartzog 

@Dion DePaoli 

Thank you all for your time and effort to respond.

Mike, we did a lot of work to pin down tax liability and liens before the purchase.

Unfortunately, we did not obtain docs before closing.  We did, however, purchase a prelim title report.  So, as Dion pointed out, I may be OK.....I may not be OK.  We'll have to see.  Sweating a LOT more since reading all of your posts; and sleeping a bit less.   We'll work through this and I'll be contacting the sites I've been using to determine their support for providing files BEFORE purchase from now on. 

My goal was to not lose money, profit on this first one is "gravy". I'm hoping the deep discount to FMV will provide buffer enough to attain that goal.

I'll be re-reading all three of your posts several times and making checklists for future purchases.

I'll keep everyone informed of progress.

I hope we get out of this intact (financially and psychologically)  :-)

Thanks again.