All Forum Posts by: Vik C.

Thanks Bob. I know this varies by market and individual note, but what is the typical range of loss of principal when there is a foreclosure (i.e. LGD loss given default). How many cents on the dollar are typically salvaged? 20 cents? 80 cents? etc.

Bob, thanks for your feedback. I will PM you.

Darrell, absolutely true that HML can easily yield 10-12% + points, but that is not risk-adjusted. How much can a beginner/intermediate HM Lender make, assuming he hits some bad deals along the way. That is the number I am looking for, not the one that is commonly advertised as the HML going rate. It also seems to me that HML is slightly more hands-on than note investing, unless one has already set up a team operation that works like clockwork and is based on a lot of trust.

6% returns CoC is doable but actually hard in my neck of the woods (NYC), and you are right that it is probably more headache than I am willing to deal with in the long run. Even if I were to go for rental income here in NYC, the high property values mean my eggs would be in one or two baskets, not diversified. If I lived in the midwest, I would probably give more thought to landlording, but in NYC it seems like a fool's errand if you are looking for 6% returns without tying up huge amounts of capital.

Hi all,

My "real estate goal" is very straightforward - I am looking for an approach that can yield a 6%+ annual return with as little active work and time as possible, after a learning period (of up to 5 years).

By 6%+, I mean risk-adjusted, not nominal. I also prefer stable income streams rather than volatility, otherwise I would have just stuck with equities. I am not looking to maximize my returns or strike it big. Just looking for a nice income stream business that I can run on 5-10 hours a week or less and ideally remotely. These qualifications are what led me to thinking about notes/HML as opposed to hands-on flipping or even landlording, which take up more time, stress, and hands-on activity.

I am also looking for an approach that can be successfully executed with less than $500K starting capital. Not sure if that is too low for notes or HML given the lack of diversification. One thing I learned from my finance days is that it is all about dversification and spreading your credit risk amongst as many uncorrelated counterparties as possible.

So with the above said, is note investing and/or HML something that could meet my return and time commitment goals? Am I barking up the wrong tree?

Thanks

Does one need to be an accredited investor to invest in a notes fund?

Thanks Jason. You're right on the money. I used to work as a consultant for financial institutions so I've hard risk management beat into my skull over the years. So yeah, I'm trying to be my own risk manager and the first step is discovery of understanding what the typical uninsurable risks are. 

To clarify though, it appears that the sources I've read indicate Neglect IS covered under Umbrella Insurance, though not under typical Homeowner's or Dwelling Insurance. Does this sound correct to you?

Hey Jason,

Thanks. The bullets you list out cover one of my questions. It sounds like the key is that there are several very "possible" events that are not covered under a typical dwelling insurance and umbrella insurance, particularly:

• Flood - Does this include flooding" from a bad storm? Is this usually not included? I know Flood Insurance exists, so it sounds like every landlord needs to have this as an additional policy per home.
• Neglect - Surprised to hear your example was about out-of-service smoke detectors. That sounds like Neglect to me, but you mention that as a common exclusion. In fact, the "Neglect" exclusion is quite concerning, since almost any maintenance/property related issue can be defined as neglect. As such, it sounds like umbrella insurance is a lot less useful than I originally thought. 
• Intentional Acts - does this mean that vandalism is not covered by dwelling/umbrella insurance? Also quite concerning. From other research I've done it looks like Intentional Acts mean Intentional Acts on the part of the insured (me), so that would be fine.

In light of the above bullets, I'm not sure how a landlord would actually eliminate the risk of total loss and asset forfeiture of all they own or all that is owned within their LLC. I must be missing something because I doubt that shrewd business people would take uncapped, uninsurable risks like these with their personal assets/LLC assets.

Thanks again.

Hey guys, 

Much thanks for the clarification on terminology between homeowners and dwelling. But I don't want to get caught up in nomenclature. Does anyone else have some guidance on the two bullets I mentioned above? 

Thanks! 

Let's assume I have both homeowner's insurance on a SFH rental as well as personal umbrella insurance. The SFH is owned in my name, not via LLC. Let's assume my umbrella policy covers me up to $10MM in liability, just to be super-conservative.

My understanding is that if I am sued for more than $10MM, the remainder is out of my pocket. Fair. Two part question for other situations:

• Given the protection I outlined above, what can possibly happen that can make me lose money due to damage/lawsuit, other than vacancy and out-of-pocket deductibles? What kinds of things are typically not covered by these policies. I understand each policy is different and one must read the fine print, but I am looking for answers that discuss any items that are "typically" not covered.
• Assume I get sued for $5MM. What is a ballpark range for deductibles? I know that depends on the policy, but are we looking at around $50K out of pocket or more like $5K for a typical policy?

Thanks a bunch. It seems like the answers to the above are absolutely necessary to have before risking net worth on a buy-and-hold real estate investment. There is risk in everything but understanding the risk is the first step to managing it.

 Hi Nicole,

I think that is a good lesson to learn. From my limited time here, BP seems to be a very optimistic and helpful environment. It makes you wonder why people are being so helpful - after all, it's not like people who get into real estate just happen to be more humanitarian and generous than the rest of the world. There are probably a lot of ulterior motives on the forum - and not necessarily ulterior motives that are malicious, but at the end of the day, everyone is out to benefit themselves. Sometimes that personal benefit can be positive - for example, someone being really helpful so that they can build a reputation/network which may be leveraged down the road. Others may look for personal benefit in less positive ways - like misleading newbs in ways that are profitable to themselves.

It's hard to sniff out the difference. And since most real estate activity requires team work, it's a hazardous path. So I feel your pain and I am wary of the same things when I interact here. That said, I do believe there are lots of good people on these boards. It's ok to trust, but not blindly. It must be doubly hard to navigate all of this when you are looking to raise external capital. 

I wish you the best on your road to success. I can't offer you much in the way of expert advice but happy to be a sounding board if things get frustrating.

Vik

For context, are you referring to getting into the business of rehabbing and flipping houses? Is the issue that you cannot find people to provide the capital? Would you be running into the same issues if you had the capital to do this on your own?