All Forum Posts by: Tom Dillon

@Chris Seveney and @Andreas Mirza

Great explanations/illustrations. Thank you very much for the input.

Makes a lot of sense!

@Andreas Mirza 

With the NPNs strategy are you in first lean position? (So if there is a foreclosure and there isn't enough equity left in the property due to a market correction, you can rent it out until a recovery.)

If there is a second lean on the property and both the 1st lean and second are underwater, does the 1st position have to make the second position whole before taking over the property to rent it out? (I'm sure the borrower is responsible for the second, but they were responsible for the 1st and that didn't work out now did it, so what if any complications are there for the 1st position? Does the 1st own the property free and clear?)

Again thank you everyone for contributing to this thread, I am learning a lot!

@Joshua Andrews

Thanks so much for the clarification. 

All the input so far makes a lot of sense and is very helpful.

It doesn't seem to be uncommon to get between a 10%-14% yield on notes. How is this yield thought about among investors? 

As I think about it I say to myself well there is inflation say 2.5% if you believe your government so really ( 3% - 4% at least), then there's risk free 10 yr treasury say 4%,..... Stocks maybe 7% - 8% (Stocks = risk free + inflation maybe 1%-2% above that). 

So Real Estate Notes...4% risk free treasury + Inflation (3%-4%) = 8%  so there is the cost of doing business what if I have to foreclose, maybe put some money into the house to sell it or rent it till I can be made whole again, how long am I sitting on the capital not making a yield + I have to do some work to get my money back = the other 2% - 6% to equal your 10%-14% yield?

@Chris Seveney Great input! 

I'm new in the note space so all input is much appreciated.

@Ricardo Fainsilber I'm not sure. 

But I was inquiring about the note fund. I know to invest in the fund it is required that you are an accredited investor.

I know you can buy individual notes from them without being accredited, and they used to provide training to educate investors, but they stopped that program. So maybe they thought you where asking about individual note investing/training?

I know they have a warranty on notes purchased through them. I'm sure it is in everyone's best interest to be doing business with as much knowledge as possible.

Setup a phone call with them, I'm sure they will be more than happy to talk with you.

Hi @Kris Wong, The Multifamily apartmens I've been investing in are in the 200+ unit deals with partnes and onsite management. These types of properties are highly competitve and attractive to the institutional players.

The REITs have to put money to work if they have it, and in this market they are willing to pay up, even if it does't work. Unfortunatly the investors in the funds will get hurt as they go through a down turn and maybe do ok again years from now. The fund will take a hit as the cost of doing business, and still keep going.

With that said it makes sense to sell some assets (depending on business plan, especially if things haven't worked to expectations), to the institutional player when the market is high ( It would take years to make the money back that is sitting in equity, if we waited for rents to rise and get the cash flow.) So we sell and wait for a more attractive entry.

Some properties that we've purchased well in the past, and are cash flowing are being held, and will do fine through the next down turn. So it depends on the asset, what the business plan was for it, and the opportunity in the market now...etc..

I love Austin by the way. Good appreciation and fundamentals, population job growth. But be carful not everything is a good deal even if it cash flows. When I first went into Austin years ago houses that were renting for $1300 mo. went down to $950 to keep them occupied. Who says rents never go down.

I've always been a fundamental real estate investor, buying single family homes in Austin after the stock market dot com crash when foreclosures were plentiful and renting them until the market came back. Moving into value add apartment buildings in Arizona and Texas, after the 2008 crash, when prices were dirt cheap. 

As the market recovered, and building became cheaper than buying, we went into some new development deals. 

Now prices are high and we are selling into demand taking profits. So capital is coming back. Great! right? Well kind of. Capital doesn't cash flow by itself, and a CD isn't going to keep up with inflation let alone give a return.

So what to do?

I'm exploring discounted notes. Looking into PPR's Note Fund. 

Is it a bad idea to invest in notes with the market heading into higher territory? Is there enough of a discount built in, to protect my capital and still cash flow through a market correction?

Looking for input, thoughts, experience.

I contacted PPR for the first time last week and they responded promptly. 

We set up a phone call with Peter and we had a professional and frank discussion about investing with PPR. He did a good job answering all our questions. He also followed up with some of the forms needed along with references.

So far they have been very professional in my experience.