@Joel Owens
How many notes do I have? Not as many as Dave & PPR.
Debt forgiveness is only a factor if I report a loss on the note & send the borrower a 1099, which there shouldn't be a loss if I am this doing it right.
Percentage of collection is really not as critical a measurement in the model I use vs. Dave Van Horn's. Dave knows that may never collect on a few notes but also knows that he will hit some major home runs with others to balance the portfolio and he may have only paid 2 or 3 cents on the dollar for them.
Because my preferred strategy is to invest in notes with substantial protective equity, you should collect 100% of the time. The unknown X factor is over what period of time, & how much how much over what you paid will you recover.
Dave Van Horn's PPR model is slightly different than my preferred strategy. Dave is willing to buy notes with less equity because he will buy larger pools in a portfolio approach & he has built a robust trade desk & collection machine. I take a much more individual approach where I rely on equity protection on every note.
Emotional equity is an important factor for his model & yes I have seen it work first hand, I just prefer to have monetary equity.
@Wendell De Guzman, there is no typical discount, it varies depending on several factors. Position of Lien, perceived collateral value, market conditions for liquidation, risk & sellers needs objectives.
@Dion DePaoli I think you are right that there may be a disconnect of understanding of terms we are using. Forgive me if I misquoted or interpreted your statements incorrectly.
My statement that, "it's all about the collateral" is a bit oversimplified & I can see how it can be misunderstood, so thank you for giving me the opportunity to clarify.
I wrote "Look at the as-is net liquidation value of the property first minus any superior liens (property taxes etc.) and liquidation costs etc."
"I buy underwater mortgages all the time but at the appropriate discount."
What I should have said was "At what discount would I have to purchase this note where I am happy if they pay and happy if they don't pay?"
Much like a true Hard Money Lender who doesn't care about credit, if his LTV is in a range he is comfortable.
Here are some oversimplified examples of the questions that matter to me:
If I buy a $100,000 note & the property has a net liquidation value of $80,000 after foreclosure, and I buy the note for $50,000 I would have a potential profit of $30,000, am I ok with that? What if it took 2 years to get it?
If the borrower re-performs and pays me $800/month for the life of the loan, am I ok with that?
If the the borrower pays for a 7 years & then refinances or sells where the net value of the property is up to $100,000 & I have received scheduled payments plus a $100,000 payoff, am I ok with that?
When I mention the "investor", I am referring to my investors and I as the defaulted note buyers, not the banks investors who blew it and made a bad loan. I am not concerned with how much the originating lender or their investors are losing or recovering, or their invested capital basis. I just want to do a trade that works, my cash for their note at a price that makes sense. As soon as I buy that note, the original lender & all of his costs , losses & expenses are not my concern. They are out of the picture. The only numbers that matter from that point forward are:
1) How much of my money goes out to acquire & fix the problem
2) How much money comes back for my return.
Oh yes, as far as out of the box, I thought sending cookies was kinda clever.
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