All Forum Posts by: Mike Hartzog

@Wayne Snell

 I wish more investors would post about pitfalls like this.  I have run across these in my DD as well.  I identified them on the simple 2-owner O&E level search product by looking at the deeds.  In these cases, the type of the deed is lease hold rather than fee simple.  I am curious to know if you look carefully at the last two deed conveyance images, is the type of title conveyed is not called out as lease hold?

Hi Collin,

2nd lien investors rely primarily on the emotional equity of the owner to get their 2nd paying again.  They look for situations where payments are current on 1st lien note with the idea that if the borrower is paying the first lien note they want to keep the property and are generally living there.    That being said, 2nd lien investors understand that a percentage of their investments will not be collectable. 

You had indicated that the property is vacant, which suggest the owner has already given up and has moved on.  To verify, you could check the credit report of the borrower which should tell you if the borrower is paying the first.  If they are not, I think your chances of getting the 2nd paying again are extremely low.  Foreclosure leaves you subject to an underwater 1st lien.  You may be able to negotiate a modification with the fist lien holder after foreclosure, but its a risky gambit at best.  Personally I would stop if the credit report reveals that the owner is not paying the first.

I don't know the situation around your purchase of this note, so I can't really criticize.  It may have been part of a larger pool, in which case this is just part of the group of uncollectable assets in the pool and you likely have others which are collectable.  If you are purchasing one-off, my advice is to be extremely selective.  Assume that 95% of what is offered are not good deals and only purchase those which you have done complete due diligence on and have all the factors lining up in your favor.

@Bill B.

I think you have a simple question here, and unfortunately the thread took a left turn into discussion of licensing and regulatory compliance.  These aspects are important but they don't address your primary question; how can I use OPM to finance note purchases?

@Bob Malecki nailed one of easiest and most straightforward methods early in the thread, i.e., form a business entity with other experienced note investors, pool your funds and buy some notes.

If you want to leverage funds from passive investors who will not be actively involved in the selection and management of assets, the proper way to do it is to form a 506 reg D fund.  These funds are registered with the SEC as securities and you will need to find an attorney who specializes in setting them up.  Plan on costs of 15K+ cost and 4-6 week timeframe for setup.  There is a significant set of rules associated with this type of structure which you will need to learn about.

If you don't have much of a track record in note investing, the JV approach is probably best for now.

If you need to get cash from your "happy-dance" note, there are a variety of options.  Borrowing money on it is not practical.  Best to season it for a few months to establish a payment history and sell it to another investor as a re-performing note at a discount.         

If your seller has the deed, he should be able to evict the current occupant.  As Darren mentioned, it's not a good idea to make an investment in collateral which is involved in a law suit.  I would also insist that the current occupant be out of the property.  You will want an appraisal on the property before lending.  If you end up lending, use a title company to close and ensure the 1st lien is paid and your loan is in 1st position.  Get lenders title policy as well.

The question makes sense.  The interest returned to you is your profit, while the principal portion is a return of your working capital.  If you want to maintain your working capital at it's current level, you preserve the principal portion of the payments you receive for reinvestment.  Ideally, you would be able to reinvest both principal and interest for a time to grow your working capital before to begin taking interest distributions.

The goal for most of us is to get a workout on the loan.  Because we are not banks, we have more latitude in what we can do in terms of a loan modification.  When this is successful, you end up with a re-performing loan purchased at a steep discount which would provide a very good yield.  If that fails, we foreclose or take a deed in lieu.

Here's a blog post which provides an overview of different types of note investing strategies.

The short answer is no.  Banks have loans and they have REOs, and the two are different types of assets.  When you purchase a note, it is secured by the collateral property.  Ownership of the collateral property resides with the borrower.

Congrats!

Thanks for the insight on the area Jay.  I have visited only via Google Earth.  :-)

We had to foreclose on one of our mortgage loans and ended up with an REO in Tupelo, MS which we would like to hand-off to a local investor. The property is in good shape structurally, with a good roof, etc. The interior needs some paint, appliances and general updating. Here are the basic stats, and I will let you do your own math.

Address: 1307 Boggan Drive, Tupelo MS

Built: 1970

SF: 1334

Bed/Bath: 3/1.00

As-Is Value: 38K

ARV: 42K

Rent Estimate: $875 

The values I have listed here are from an interior/exterior BPO we had done earlier this month.  I am not including an asking price because, frankly, as an RE investor you should be able to come up with an offer that you can justify.  I have a good idea where an investor would need to be price-wise on this one and want to make someone a fair deal.  IMO this would make a great entry-level flip or buy-and-hold.  Contact me via email if interested: [email protected]