All Forum Posts by: Gail Greenberg

Unfortunately if your 90% purchase price is significantly below the homes value, that means the house has a lot of equity. And the culmination of all foreclosures is the foreclosure sale where you as lender set the minimum bid. You can only get your UPB + legal and other expenses. In the scenario you're envisioning, you don't get to "keep" the borrowers equity unless no one bids the minimum and you get the house. But that may or may not happen. You certainly can't assume it will.

Hey @Nathan Patterson, welcome to Note World!  Performing notes are great but you pay a high price for them relative to non-performers. So the concern is, if they stop performing, what are your options in an exit strategy?  It's very easy to get caught up in all the different ways of computing return. What I focus on is doing due diligence to 1) look for signs they'll keep performing and 2) make sure there's a solid exit. 

Most performers are priced 75%-100% of UPB to give you about a 12% return or 15% if you're lucky. As I'm sure you know, it's much more lucrative to pick a non-performer with strong signs that the borrower will reperform, get it reperforming and then keep it longterm for cashflow or sell at a substantial profit.

I guess what I'm saying is, it's not that hard to find assets you can buy at NPN prices that are very likely to reperform. I just bought one at NPN price that IS performing on a loan mod. That's kind of the art of this business.

I would first of all decide not to make any immediate decisions. I agree with @Chris Seveney that a performing note would be a very good starting point. Immediate income and it's easy to cash out of it if and when he formulates another plan. But even with that, he needs someone to guide him or JV with him who isn't going to take advantage of his youth and inexperience. The issue is that whatever he does, he's going to need time to educate himself and recommendations on who to trust. And he's just so young - who among us was wise at 20? He could perhaps also buy a duplex and live in one apartment while getting income from the other. I think the main thing he needs is someone who will counsel him and put the brakes on any foolish ideas. Maybe you're that person @Jeff Sitti?  Good luck!

Hi @Eric Huebner   Step 1: FIND OUT WHAT THE SELLER WANTS. Sometimes people care deeply about the interest rate; sometimes they want a certain amount of income to supplement their retirement - very possible since he's retirement age.  Once you know that, I would approach it this way:

$425,000   Purchase price
-$42,500    You didn't mention a down payment but I'm assuming 10%

$382,500    Amount you're financing

 Go here and play with the numbers to see how to get him what he wants.  http://www.amortization-calc.com/

At 5.5% and a 30 year term, your monthly PI is $2,172
At 7%, your monthly PI is $2,545
Both are very manageable on gross rents of $625 x 8 = $5000

As far as a balloon, if he doesn't want a big taxable event NOW, he isn't going to want one in a few years either.  Listen to people - find out what THEY want and build the deal around that. That's the key.

And further, I'll share something I learned last weekend at Pete Fortunato's seminar in Tampa. If this guy never wants a lump sum, you could refinance this property and take the money and go buy something else - in essence, put the mortgage you owe this gentleman onto another property.  See what I mean?

I bow to the superior wisdom of the hard money lenders on here. I merely describe the paperwork I've been presented with when I was a flipper which, thank goodness, I am no longer. I shouldn't have generalized it to all lenders. 

This is a semantical debate.I said a note secured by the property plus a signed deed ready to be recorded. There are many ways to tie the loan to the property.

Applying to a hard money or private lender is actually a good way to confirm that your numbers are good - because most of them will really scrutinize your deal and tell you if it's solid or not.  Since you're new @Jake K., that would be very good for you. 

As far as foreclosure - in my experience, most private lenders don't ever put themselves in a position where they'll have to foreclose to get their money back. They require that when you close on the house you're going to flip using their funds, they get a deed from you, signing the house over to them. Then if you disappear or mess up the deal, they just go record it if they need to take possession.  Most hard money lenders do not strictly speaking have a mortgage on your house - they just have a promissory note secured by your house.

Jake, I know from seeing you on here that you're new and looking to get rocking and rolling in real estate. If I were you, I'd look at your local REIA for an experienced person who would mentor you a bit -let you do some deals with them where you do a lot of the work for a small piece of the profit. If that interests you, ask the officers of the REIA if they know any members who would take you on.

@David Piqueira I'm a note investor and I can confirm that everyone who invests in notes has on occasion known of a specific house they'd like to buy the note on and it's pretty much impossible. 

@Wayne Brooks, most 1st liens that are non-performing DO sell for around 50% of unpaid balance. Since the loan wouldn't have been for 100% of the home's value anyway, though, David would not be paying strictly 1/2 price for the house. 

@Dustin Frank, a foreclosure sale has to be a public auction. Otherwise what would prevent the lender from possibly accepting a lowball bid just to get their money back and cheating the borrower out of "surplus funds" for their equity? I think we can all agree that would not be cool. However, the friend could have gone to the auction and bid along with everyone else.

Final thought, David, why don't you just buy a distressed note in an area that you're interested in and look for the right criteria to give you a good chance of getting the house? This would be the perfectly legal way to do what you're suggesting. Non-performing Contracts for Deed, particularly if they're vacant or the borrower hasn't made a payment in years, give you an excellent chance to own the house. Ditto non-performing conventional notes that are underwater. Then when the house goes to foreclosure auction, you can set the opening bid high enough that no one will buy it and it will be yours.

Yes @Jake K., I agree - go and listen at the REIA. And, you might be surprised how much more social you feel when you're in a room full of people who share your passion.

I was just at Eddie Speed's Note Expo and heard him using the terms "A" note and "C" note very casually as if we all knew what it meant. I asked someone who owns Eddie's courses what the criteria are for each of these notes and he said it's never been clear, at least to him.