All Forum Posts by: Account Closed

Thanks, that is good advice. It gets complicated pretty fast. It seems like most of the value comes in buying the note at a discount on the UPB at the front end. If you do that, and the note does not default, you make money no matter what (to a greater or lesser extent depending on how fast it is paid off). Does that sound right?

Interested, but gotta check the schedule

I am trying to understand how to invest in notes.  It is easy to invest in a note fund, just give money and (hopefully) watch the return flow in. 

Individual notes are another matter.  For now, I mean performing notes.

One can buy an individual note from a number of vendors. They talk about whether it is performing, position (first or second or whatever), Unpaid Balance (UPB), number of payments due, amount of payment. Some sites even suggest a fair offering bid.

What I am missing, is an understanding of the actual returns and the risk. 

If a note has 120 payments left, at $250 per payment, then that equates to $30,000. That is the maximum that could be squeezed out of that note (as a performing note). Say one buys it now for $15,000.  So in the first year, the return might look high ($250x12 / $15000 = 20%).  But, over the course of the note, the overall return looks much less ( future value of $30,000 in 10 years with present value now of $15,000 implies around a 7.1-7.2% average annual yield). 

If the note if paid off early, then the average annual yield will rise, of course. 

So it seems like a mortgage note is just a mortgage backed security that is reasonably safe, reasonably predictable, and low maintenance. It seems that the returns are likely to be in the 5-8% range, unless the note is paid off early.   What have I missed?

Can you sell the note after a year or two? Is that a good strategy? How often are the notes paid off early? How reliable are the note servicing companies? It seems like a pretty low maintenance way to make moderate returns, with a lot of upside and less downside. 

I welcome any analysis and/or advice. Most of the books or websites I have read are long on generalities, but very short on actual numeric analysis. 

Thanks!

Update:

That post was meant to be posted in August 2018, but it only got posted just now, in Dec 2018. 

The deal went through for 85K, cash purchase. The home rents for 750, the trailer for 600. No problems with collecting rent so far, although the trailer is about to be vacant and will need a little work. 

We put a new roof on the trailer for 1800, and the home for about 4200. The home roof job had all kinds of problems, because it leaked during the roofing process. The contractor was very good about getting it fixed up, though, and now it is good. 

I have been unable to get the cash out, because no one will loan against a nonconforming lot with a house and a trailer on the same lot. Now trying to subdivide the lot into 2 separate lots, so both will be conforming uses and therefore easier to leverage or sell later. 

All in all, I am pleased with the deal. It has nice cash flow, and has not been too much trouble so far. 

I would love to hear any thoughts, comments, suggestions. 

Newbie here. Here is the deal:

SFH on a lot, with a trailer on the same lot. Asking price is 95K. Current rent $750 for the home, and $535 for the trailer. Both currently rented. The home is old, and needs some work, but has a lease for at least the next 10 months.. The trailer is old, but should last a while yet with good maintenance. Same tenants month to month for 3 years. The cash flow is very good. BUT - I am not sure that I could sell it and get my money out in 5-10-20 years. I suspect so, but I don't know for sure. Plus, both are old. Eventually need a new roof. Maybe a remodel, even. But there is NO DOUBT that it would cash flow. Yet, people say you make your money when you buy. I'm not sure I can get it for much less than 95K. My realtor thinks that with 15K investment, it'd be no problem to get the money out. Still, she values it about 85K, not 95K. It would probably be a cash deal, at least at first. Then a home equity loan if I can get one on a property with a trailer which is a nonconforming use according to zoning.

Any thoughts?

Hey Dillon

I would like to talk to you. Email me at [email protected], maybe we can set up a time to chat. Probably next week, or maybe this Sunday. I'm pretty tied up before then. 

Thanks

Todd Brown

I am in Moore County, Justin up the road. I am also interested in Fayetteville. Following. 

I emailed you, thanks

please send info to [email protected]

Thanks!