All Forum Posts by: Mike Hartzog

If the HOA put a lien on the property in junior position, then foreclosed on the lien, leaving a senior position mortgage loan, they would own the property but not the remaining loan. That scenario would make sense. In this case the remaining loan would be theirs to pay. So need some clarification here. Who owns the property? Who is the current assignee of the existing loan?

I find it helpful to know what the seller thinks the collateral value is, regardless of accuracy.   If our own valuation in higher than the sellers number and the bid is based on value, that’s an advantage in the bidding process because the bid can be stronger and more competitive.  If it’s the other way around,  we may not bid at all.

Love the creativity!  Nice work Don, and thanks for sharing.

I do the bookkeeping for my investment entities, which includes a single member LLC, a multi-member LLC, and a fund. I just found it to be more of a pain to deal with a bookkeeper than to do it myself, and it is not that much additional work. In addition, we hold some partials in the fund portfolio and the bookeeping for those is not straightforward, i.e., the principal and interest breakout you get from the servicer is not the breakout you need to book with a front end partial. (Because some of the interest paid is actually principal from the perspective of the partial loan.) I have a hard time trusting someone else to do that properly.

There are a lot of expenses involved in non-performing note investments.  So if you don't have a checkbook SDIRA, where you can write the checks yourself, then I would strongly recommend sticking with performing notes.  Residential performing notes can even be a pain with a custodian controlled account, because they typically charge a fee for every payment your loan servicer sends in.  A good fit for these types of accounts is local lending on fix and flip projects, because these are typically structured with no regular payments during the term and a full payoff at the end.  Another good option is passive investing in RE syndications

Following this thread...  Would also love to hear any war stories investors may have on this topic.

@Michael Vaughn To calculate annual yield on a normal loan where there are regular monthly P&I payments, I use a spreadsheet.  Excel has a RATE formula for calculating yield.  You will need to know the number of payments remaining, principal balance, and payment amount.  (When buying loans at a discount you would use your cost basis as the amount, and not the principal balance to find your investment yield.)  I did a blog post which explains this and 3 other related financial formulas, and it includes a link where you can download a sample spreadsheet which provides an example of how to use each of the 4 formulas.

https://www.biggerpockets.com/blogs/5359/41924-doing-the-math-on-mortgage-notes

You cannot put a new 1st position lien in place because any new liens, other than tax and municipal liens will be junior to any existing liens.  You didn't mention the type of lien, but you can sometimes successfully negotiate with the lien holder to reduce the amount.  Depending on the state, there can be significant time and expense involved in foreclosing on a lien, so getting paid a smaller amount now vs foreclosing on you can be a better deal for the lien holder.  Also, should should be able to demonstrate that the lien exceeds the property value, and they would not be able to recover a full payoff in a foreclosure sale.   

The other option, of course is to walk away.  Moving forward could dig you in deeper.  Do the math and make a non-emotional decision.  If you do move forward, purchase with title insurance.  The title company can guarantee that this is the only lien on title, and when you clear it you will have a clear title.  Also, at minimum your wholesaler should agree to waive the assignment fee, given that the title situation was misrepresented.

I didn't comment on that, but since you brought it up, I would say that it's important to know and follow the local laws.    

IMO it is best to look at annualized return.  There must be a time frame defined or the number is meaningless.