All Forum Posts by: Mike Hartzog

Don't forget to account for insurance, property tax, vacancy, and cap-ex on the big ticket items which will eventually need to be replaced (roof, water heater, HVAC, etc). 

Assuming you and your partners have some time to go before retirement, I think #3 is the clear answer.  Reinvesting your returns is a hugely important if you want to increase your cash flow over time.  You should be plotting your course to position yourselves for making the next investment.

I would be looking to determine if there was a policy in place for the purchase prior to when you purchased it.  That insurance company would be on the hook to resolve the title issue.

@Account Closed

You had asked how to calculate yield.  You can use a financial calculator but I find spreadsheets easier to work with.  To calculate yield, you need to have

- number of payments purchased (the remaining term)

- the P&I payment amount

- the amount you are purchasing the note for

With the above you can calculate your yield.  You can also use the first two values plus your target yield to calculate your bid/purchase price.  Here's a blog post which goes into the particulars of using Excel for financial calculations.  The blog references a sample spreadsheet which you can use to do both of the calculations I mentioned above. 

To calculate your bid/purchase price in the spreadsheet using a target yield, use the formula which returns PV.  Plug in your desired yield into rate along with the other two values.  The resulting PV is your purchase price.

To calculate your yield using the seller's asking price, use the formula which returns rate.  The value for Amount is your seller asking price.  The resulting rate is your yield.

Hope that helps...

I'm with @Bob Malecki on this one.  The risk of re-default is high with no seasoning time.   I would do the following before pulling the trigger.

- Calculate your ITV to ensure that there is sufficient equity so that in the event of default you can recover your capital plus some extra for your trouble.

- Calculate your investment yield and adjust bid to hit a reasonable target yield. I would be looking for a yield in the high teens for something like this.  10% is not enough IMO.  You can do better.

- Negotiate a warranty period as Bob suggests.

Hi Bill,

"Current" means that the borrower is not behind on payments, i.e., no arrears.  You would need to modify the loan to either forgive or capitalize the arrears in the mod and get a minimum of 3 payments from the borrower on the modified terms after any trial period the mod may define.  I would recommend finding a mortgage broker who handles these for further guidance.  The broker should be able to pre-qualify the borrower with regard to requirements such as minimum credit score and establish borrower income level.  You would need to know income level in order to properly structure the modification so that it qualifies for the program.

There is no hard and fast rule on this.  Seasoned note buyers will generally have established criteria and are looking for a particular minimum yield, so the offer would discount enough to achieve the target yield, assuming there are no other issues present that would warrant a deeper discount.

The first position note is more valuable than your 2nd with the same terms, so one could make the argument that since you were OK loaning on a second position at those terms, a 1st at the same terms would be a better deal.  On the other hand, the seller clearly wants to sell, so you might pick a yield like 12% and discount to that for your initial offer. 

It depends on your strategy.  Keep in mind that a consumer loan, i.e., a loan to an individual who intends to occupy the property, is subject to government regulation (Dodd-Frank in particular).  You will need to use a mortgage loan originator (RMLO) who is licensed in the state, and there is significant cost related to this.  The alternative is to do commercial loans to business entities for construction and rehab.  These are short term loans which generally carry a higher interest rates + points.  An RMLO is not required in this case and you can develop repeat business with your borrowers.  If you are looking to park some capital in a long term loan, it is best IMO to buy an existing loan rather than originate yourself.

Wow that's not something you hear about every day.  I don't know the answer, but I would like to know.  I found this article on nolo which may or may not apply here.  If I were to guess, it would be that your liens are safe.  I doubt the county would want to disenfranchise its own tax lien investors.  Seems the investors would have a cause of action if the tax liens were stripped, since they facilitated purchase of the liens in the first place.  Have you called the county to ask about it?

I agree with Bill's assessment.  As the foreclosing lienholder you are in control.  You inherited a situation which may or may not be to your benefit and this needs to be assessed before moving forward.  My advice is to not worry about looking stupid to your attorney.  You should simply admit ignorance and ask the attorney to walk you through the various outcome scenarios so you can gain an understanding of your position for each.  It may be that you don't like any of them and decide to cancel the foreclosure. 

Investors who buy distressed 2nd liens look for notes where the borrower is paying the first lien because these are more likely to get a workout, so selling this note is a good possibility, but understand that these trade at extreme discounts so you would likely only get a small percentage of what you are owed.

@Zachary S.

A balloon payment is an oversized payment which is generally posited at the end of the loan term.  It's used frequently in commercial and sometimes on owner finance loans to force a payoff and/or refinance.  For example, the lender may define the loan term as 10 years but setup payments on a 30 year amortization.  In this example, regular payments are based on the 30 year amortization but the final payment is the total unpaid balance at that point.