All Forum Posts by: Ellis San Jose

You can buy a list from a list broker or go to the Recorders office & do the research yourself.

I do both, like Dave Van Horn, I like the scalability of notes and they typically have less management involved. Notes have a finite income stream & payoff. Owning real estate has more tax advantages & also the possibility of appreciation, equity growth, & the income from a rental will continue as long as you own & manage it.

There is a FIBI (for investors by investors) in Bakersfield. Go to meetup.com and search for 'FIBI"

Can you purchase on terms?

Can you subdivide into smaller parcels?

Great article Jackie, thanks for sharing it. Quincy know his stuff when it comes to IRA's.

Perhaps you could have wholesaled it to someone who works that area.

Notes & Options

I don't like owning Real Estate in the IRA.

Too many things I might screw up.

@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.

.

@Dion DePaoli

Dion,

When a loan is underwater & assuming it is non-performing, obviously the value is less than a performing loan and should be discounted accordingly.

When the loan can be acquired at a deep enough discount, and by thinking out of the box, which I really enjoy, there are significant opportunities and exit strategies, that create opportunities for a "win-win" with the borrower & investor.

I respectfully disagree with you on a few points. First, that return is limited to performance of payments. That is how the banks got in trouble, they think like banks, not like investors. They were in a position that if they foreclosed they would lose a ton of money. Yes, you have to follow legal procedure to enforce your rights as a lender.

Further, I disagree that the definition of "underwater" never changes. If I buy a loan that is underwater. I have the power to change it with a wave of my hand. I can reduce the outstanding balance so that the loan balance is no longer underwater. (Hmmm... is this a bargaining chip for negotiation)

This is an example of just one of the multiple possibilities. Imagine this scenario where you are the homeowner. For the last 2 years, you have been dealing with the impersonal collection machine of the loan servicing department for a Fortune 500 bank. Different people calling each time, sending nasty letters in pink. You are jaded by them, ignore them, & pitch them straight into the trash can. But one day, instead of the typical collection call or nasty letter, you receive a box of cookies with a note attached, saying that we would like to lower your payments or lower your loan balance so you can stay in your home. Imagine the surprise when an actual human contacts you and is courteous, respectful, & is also authorized to cut your monthly payments in half, as long as for the next 12 months you pay on time. And it isn't a 50 page application in triplicate with a drawn out approval process.

Now instead of the $2,000 a month mortgage payment which would strangle you, you now have a manageable $1,000/month payment. Your loan balance used to be $335k but your house is only worth $250k, but thats ok, we offer to adjust you loan balance down every year so that you can be in an equity position in 2-3 years plus you keep your dignity & stay in your home.

Now it's just all about the math and quantifying possible outcomes. The matrix of best case through worst case. What is my return if they pay on time? If they pay slow? If they don't pay at all, trash the house & I have to enforce my rights as a lender and foreclose on the property? The answer is.... it depends on what you pay for the note & the expenses associated for collection & repossession. If I am happy with the return regardless of each of those possible scenarios, that is note nirvana for me.

@Dion DePaoli

Perhaps I wasn't clear in my answer and should expand my explanation. I acquire underwater mortgages all the time, however, it is underwater to the homeowner & the lender (property is worth less than the loan balance). As the note investor the price I pay is at a significant discount so that I now have the required equity protection. The loan isn't underwater to me or my investors.