2016 Update: A Year in the Life of a Note Investor Recap

While my intentions for this year was to blog once a week on my happenings and successes within the business (see the original post here), I realized it was a lot of time and effort for just a few viewers. I decided to stop posting weekly so I could focus that time instead of furthering my business efforts and to be honest, have just a little extra time for me. If you were one of the followers keeping up, I’m sorry for our lack of recent posts, but I am very glad to give you our year end update today! Our 2016 Business Goal was to make $120,000 in pending or actual profit. Not only was it accomplished but we SURPASSED it! The icing on the cake, we didn’t have to take any “pending profit” into consideration. We made a whopping $153,000 in gross profit from our note investments and members at http://www.tapetechs.com and http://www.NoteInvestingClub.com! If your interested in all the details, take a look at our stats below!

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2016 was the most successful year yet. We are beyond excited about our results and are ready for all 2017 has to bring, we know our profits, and deal flow will only continue to increase. We are seeing a huge supply of Non-Performing Inventory and great results with our note deals for both our partnering private investors and our company. If you have idle money sitting in your Roth, IRA, 401K, or savings account, talk to us. We can help increase your return on investment while securing you by real estate. All opportunities are 100% passive. Contact us by email or phone to find out more, 407-205-7363, seasonedfunding@gmail.com

Wishing you the best in 2017!

Week 29 – 5 New Deals!

Monday July 11th – Sunday July 17th, 2016

Man! This week was AWESOME! We got in touch with some REALLY good sources for off market deals, and a ton of great inventory is being released. We were able to get 5 new deals under contract and funded this week which is awesome. We’re expecting to profit  $35,000 + on the five deals without any of our own money. I’m also looking at hiring a part time assistant to help with someone of the clerical work when I go back to working my 9 – 5 full time in early August. I’m excited for how that will increase productivity and allow us to do more with me working less.

Monday (7 hours)  – I was supposed to have Jury Duty but didn’t get called in (Phew!)

  1. Reached out to 7 new potential sellers on LinkedIn. I heard back from 3 of the contacts, 2 of which have already sent me inventory! I even got a bid accepted by one of the new sellers this week.
  2. Wrote a letter to one of our borrowers that has lost communication about their options for staying in their home. We attempted to call 3 times already with no avail. If I don’t receive a response from this letter I will have the company NCCI hand deliver a letter.Screenshot 2016-07-07 12.26.35
  3. Returned a Loan Purchase Sales Agreement (LPSA) to the seller of our new Springfield OH note – it’s a contract for deed and our goal  is to get her borrower paying again. We feel it’s a high chance of success.
  4. Got an affidavit notarized for our FL foreclosure, we’re getting close to judgement sale.

 Tuesday (6 hours)

  1. Got 2 more bids accepted, and potentially a 3rd. One is an REO in Indiana and the other is another asset in Springfield OH! Both are going to be a double digit return and awesome opportunities for our partnering investors. I called the realtors for these assets to verify occupancy and value. (take a look at the properties below)
  2. Look at new assets from the LinkedIn Sellers I reached out to the day before. Placed a bid on 4 assets.
  3. Received a new tape from a client that had over 60 assets for our Virtual Assistants to research. I monitored their work throughout the research process.
  4. Wrote a formal executive summary for our new Rose St. Deal above.

Wednesday (5 hours)

  1. Tried to contact an attorney in OH to help us with our new assets we’re picking up. I had a question about the title report that was returned to us with our contract for deed. Unfortunately I was unable to get ahold of anyone.
  2. Wrote 2 new executive summaries and prepared the Private Lending agreements for our partnering investors.
  3. Found out our Indiana REO was supposed to have a lockbox…but doesn’t? We’re trying to figure out why the seller has images with a lockbox but my realtor has pictures without. Once we can get inside we can get a more accurate idea of what the property needs to sell at top dollar.
  4. Updated our running checkbooks for July for all of our inventory. This helps our partnering investors stay up to date on how much money remains in the account.
  5. Heard back on 2 bids I had out from a seller, unfortunately I was largely outbid. That’s okay, seems I have a lot of inventory coming my way!

Thursday (3 hours)

  1. Our borrower that did not deliver on a modification a month or so back called and asked for a 2nd chance since we have restarted the FC process (for a 3rd time now). We told them they can pay in full (including legal fees, etc) but we will not stop or pause FC.
  2. Got ahold of an attorney in OH that will help us review the title report and handle the contract for deed and foreclosure just in time for our closing tomorrow!
  3. Heard back on our last asset that was approved. We found a partnering investor on this deal that is going to provide a killer ROI!
  4. Heard back on our 4 bids to the new seller, and 1 was accepted. We are looking forward to this deal in Miami, FL. We believe we can keep the homeowner in the house and successfully get them paying again.
  5. Wrote executive summaries for the 2 most recent accepted deals.

Friday (4 hours)

  1. Ordered O&E reports on the four assets that were accepted this week.
  2. Had an inspection on our rental in Jacksonville, FL we have under contract to sell.
  3. Emailed the FC attorney for the new New Smyrna Beach deal we have under contract to try and shed more light on the current BK and FC that is ongoing.
  4. Spoke with the funders/partners on our NSB deal to walk through the potential risks, and likely outcomes.
  5. Wrote to one of our partnering investors about our re-performing note. We need to extend our original contract.

Saturday & Sunday (days off)

Total Bids Submitted: 4 (waiting to hear back on 2 offers from two weeks ago)
Total Bids Accepted: 4
Number of New Sellers Contacted: 7
Total Profit: $544.39

Preliminary Due Diligence: Why Do I Need It and How To Do It!

Knowing how to properly complete both preliminary and formal due diligence is an absolute must for a note investor. Your success in the workout and return of the note investment relies on how thorough this is completed before the acquisition of the note. For new note investors, this is a tedious and somewhat intimidating process as there is a great deal of research to conduct on each note. I wanted to dig deeper into this process and give you an idea of how we use this process at NoteInvestingClub.com to train our VA’s to do the preliminary due diligence for us. We then, can make quick and informed decisions to bid on assets. diligence

Preliminary Due Diligence

This is the “informal” stage of due diligence if you will. This research is conducted before submitting bids on properties and is intended to give you the property information, value, and potential costs associated with the note. This stage is extremely important because it allows you to make an educated bid on a note or pool of notes to ensure your position is not jeopardized and you are leaving enough room for profit in your offer.

What to look for in this stage…

  1. item3Property Information: This includes number of bedrooms, bathrooms, building type, year built, sqft., and any additional features of the home such as pool, garage, fireplace etc.
  2. Property Condition: In the preliminary due diligence phase this typically means Google Images. Although google can be quiet outdated, you’re looking to see how old is the picture and what condition the property is in at time of the picture. If it was taken 2 to 3 years ago and was falling apart then, this tells you it’s most likely in worse condition now.
  3. Neighborhood Demographics/Condition/Crime: I like to use Trulia.com to asses the crime, although there are many other websites out there such as crimereports.com. Look around on google images at the neighborhood. Is it residential in similar condition, is it located on a busy road or in a more industrial area. This will help you asses potential sale factors.
  4. Property Value (CMV): I like to use comparable properties for a value of my home, not just the estimated values some websites provide like zillow.com, trulia.com eppraisal.com, or realtor.com. Although they are taking the average sales price into factorimages-2 there a lot of variables that can affect the price of the home that aren’t considered in their valuation systems. I look at condition and style of property, similarities and differences between sold properties and my property (size, sqft. extra features, etc), and location/neighborhood. Sometimes one street can make a difference of $20,000 in value, or more! In addition, I use more recent sold dates, sold within 3 months or sooner, in comparison to a lot of the valuation systems the other websites use, giving me a more accurate Current Market Value (CMV).
  5. Unpaid Taxes: You will need to locate the tax assessors or tax collectors website for the county the property is located in and determine if there are any unpaid taxes on the property. Many time there can be 2 – 3 years or more (FL, LA, MI, NJ, NY, it’s not uncommon to see 3+ years delinquent). There may or may not be tax liens or potentially tax deed applications on the property. Tax deeds are important to be aware of because they can jeopardize your position as a lender and need to be paid off immediately if it’s pending tax deed sale.
  6. Liens/Judgements: This part of the process is crucial and completing this search thoroughly can save you LOTS of money in the long run. Some counties do not offer their public records for free or online, which means you cannot complete this process without Judgment-liens-real-estatepulling a formal lien search. If it is offered online, you need to search for any potential liens, secondary positions (such as a 2nd mortgage), or judgements that have been placed on the property/borrower. Creditors such as credit card companies, IRS, HOA, or the county itself can place liens or judgements on properties that will supersede the foreclosure process and remain an unresolved lien/judgement even after you’ve foreclosed. It’s important to be aware of any existing liens and discuss with a local attorney if that has the potential to jeopardize your position, or outlive your foreclosure and eventually have to be paid by you. This has helped me locate a number of notes that I was interested in buying but realized had been sold in a Tax Deed Sale, HOA Foreclosure, or had Judgements and Liens that would outlive a foreclosure that valued $10,000+. Without finding this information out I could have been stuck with a contract on a note that had no profit margin, or worse, bought a note and wasn’t aware these even existed.
  7. Status of Bankruptcy: You will have to set up a Pacer.gov account to search BK records but is important to be aware if your borrower is actively in bankruptcy or not and what stage or type of bankruptcy they might be involved in. The type and stage within the timeline can potential effect your position as a creditor.

Now you need to use the information you’ve gathered in this process to help you make an educated and informed bid on the note to the lender and if your bid is accepted, you can start the next part of the due diligence process – the formal due diligence which will be coming your way soon! OnlineBidding2The cool part, once you’ve figured this system out you can 100% outsource this to an assistant or virtual assistant as we have. I’ve talked about how we did that in our free training at NoteInvestingClub.comCheck it out here! As always, let me know how you liked the post or leave me any comments or questions!

Bankruptcy: Know The Rules So You Can Profit

BankruptcyBankruptcy can be a problematic element of note investing if the investor doesn’t fully understand the process, rules, and regulations of bankruptcy and the implications it may have on their particular investment. Our company recently bought two notes from the same borrower which had filed Chapter 11 Bankruptcy, which is a re-organization of an entity or company (similar to Chapter 13 which is for an individual). The borrower had over 11 properties that they she was surrendering and had declared she wanted to keep her homestead only. In my mind I thought it was the perfect scenario, the borrower was pending an approval of their Ammended plan, and contact with their bankruptcy attorney indicated they were willing to provide a deed in lieu on the properties. We decided based on the evidence from her case, we would buy the notes and have a quick and easy turn around on both notes.

Shortly after our purchases, both the borrower and attorney went AWOL, I mean NO response after multiple attempts! Although the workout is taking MUCH longer than expected, and the dreaded foreclosure had to be implemented, we are still going to make a nice profit on the two deals, and have learned a lot along the way.

We realized that although we were aware of bankruptcy and believed we understand how it effected us that there was a lot we still had to learn. I wanted to write this post to help you understand what to be aware of before buying a note with a borrower in bankruptcy.

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Timeline for Bankruptcy
Chapter 7 ( Typically 4 – 6 months)
Chapter 13 or 11 (Average of 3 – 5 years)

Contact with Borrower
When a borrower is in bankruptcy you are legally prohibited from contacting the borrower directly and must speak with their attorney or trustee until a lift of stay has been filed and approved.

Gaining Title
Even if the property has been surrendered (the owner does not want it anymore) or the debt itself is observed, you still need a Deed In Lieu or Foreclose on the property to gain title.

How that effects you…
In order to initiate contact with the borrower and potentially start the process of the “workout” you will need to file a lift of stay. After a lift of stay has been requested it typically takes 30 – 60 days to be given a court date to have the hearing to receive approval. So this could extended the workout timeline on your note.

Automatic Stay
Automatic stays are put into motion after the borrower enters Bankruptcy. It is intended to prevent creditors from further contacting, harassing, or attempting to collecting debts from the borrower. You must apply for this to be “lifted” and be granted approval within the BK court. It is typically granted to creditors that have collateral that is not properly being protected so they can take the next steps to protect their asset such as foreclosure.

How that effects you…
Although applying for a lift of stay is rather easy, being approved for it in court can be more of a challenge. For instance, the court will not lift the stay when an unsecured debt will be included in the debtor’s discharge (so for Chapter 11 or Chapter 13 plans). If you’re early on in the plan or your borrower files for Chapter 11 or 13 right before the final judgement (this actually happens a lot more than you’d like to know), it could take up to a year or longer before their plan is approved and you start to see some form of payment or workout solution. In the mean time you’re stuck waiting with a note you can’t do anything with! 

Proof of Claim and Transfer of Claim
In Chapters 7 and 13 and 11 bankruptcy cases, all unsecured creditors must file a proof of claim for their claim to be allowed.  Certain secured creditors, however, do not have to file proofs of claim to participate in a bankruptcy case. For example, lien holders and other secured creditors do not have to file a proof of claim to preserve their liens in a bankruptcy case. You have 90 days after the first meeting of the creditors to file this claim. proof-of-claim

Transfer of Claim happens when a creditor has changed, for example if the note is purchased from the current lender on file, you need to file a transfer of claim to prove you are the new creditor.

How it effects you….
I suggest checking with an attorney that is familiar with the bankruptcy process in the state the borrower is located within to find out if you a required to file a claim or not. This is especially important if your borrower is in Chapter 11 or 13 and a payment plan will be made to the creditor on file for the specific property. You want to ensure that your note/property will be properly addressed in their plan.

Bankruptcy Plans
A payment plan is created in both the Chapter 11 and Chapter 13 BK cases. This must be approved formally by the court before set into motion and can take up to two years before it is formally approved. It outlines the exact amount secured creditors will receive in the form of payments and for how long.

How it effects you…
Reviewing the plans before buying a note that has a borrower in BK is extremely important. If a payment schedule has been created within this, it will allow you to see what you are expected to be paid per month, for how long, and at what interest rate. If you are buying this note as a “re-performing loan” then this is the sole determining factor of your ROI and must be looked at carefully. There can be amendments to the original plan, so make sure to look for that as well. It’s also important to know if the plan intends for you property to become a part of their repayment plan, or if it is being surrendered. If it’s surrendered then a foreclosure or DIL is necessary before you are able to do anything with the property.

Now there are other elements to be aware of within Bankruptcy and many rules and regulations that were not discussed in detail here. If you want more information, glossary, or tips with BK, I suggest you take a look at the BK “Cheat Sheet” and Due Diligence checklist we provide to our paid members of NoteInvestingClub.com  for more help. Let me know any questions you may have about this post or bankruptcy itself below!

bankruptcy-questions

Remember, I am not an attorney. This post does not provide legal advice and the Provider is not a law firm.  None of our customer service representatives are lawyers and they also do not provide legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer if you want legal advice.

The Truth about Servicing Companies

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Servicing companies are big players in the note investing world. National laws allow each individual state to determine their rules & regulations for servicing loans and surprisingly do not always require you to have you loan serviced be a professional company.  While it’s possible to service your own loan, I  do not suggest it simply because of the time value. Is saving $25 – $50 per month really worth the hassle and liability/risk you’re putting yourself into but servicing itself? Hopefully your answer is no, it’s not. If you do decide to have your loan serviced by a company, the next problem you have to solve is; well, which company do I chose? There are TONS of servicing companies to chose from and each of the vary slightly in price and services but offer essentially the same thing:

  • Ability to collect payments.
  • Workout the loans (handle talking to the borrower, negotiating, or starting/executing foreclosure).
  • Filing & Sending paperwork (TILA/RESPA letters) borrower options, correspondence.
  • Keeping payment records from borrower.
  • Correctly taking out and holding escrow for taxes and insurance.

I talk with a lot of investors that ask “have you found a good servicing company yet?” and my current answer is, “I’m with _____ right now and I am happy with their results and services, but it hasn’t always been like that.” The truth is, I’ve gone through several different servicing companies and each of them have positives and negatives to their day to day operations and I’ve had to make a switch several times to hopefully find the one that works for me. Some have quick payout times when you’re collecting payments, and I’m able to get my money quickly, but their workout specialist services are not up to par. Or maybe they have lower rates, but do not respond to anything you ask and are terrible at follow up with both the borrower or the client. I even had one servicing company that didn’t send my TILA/RESPA letter but asked for a boarding fee when I was handling the workout! They literally did nothing for me or my loans, but expected their servicing fee. Let’s just say I will NOT be working with them again.

To be honest, there is no perfect servicing company. You’re just going to have to search around and do your own digging. My suggestion is to try working with them on 1 loan initially, actually receiving their services will be the true sign if their company will meet your needs or not. Even with client reviews you’re still going to have to try it out yourself and see if their services or expertise meet your needs. When I was dissatisfied with my last servicer, I asked a fellow colleague about switching to the company I’m currently using (and happy with). They said they had a very poor experience with the company I’m happy with, and that they were making a switch themselves to a new company because of it!

Here is a list of servicing companies. By including them on this list, I am in no way endorsing their company or services. My goal is to make the searching period easier for you by housing them in one location.

When you make your initial contact with them, ask them the following questions about their services; *Also check for their pricing online, if it’s not online ask for the pricing to be sent to you*

  • What information is needed from me if I board with you?
  • Do they send the TILA/RESPA letters?
  • What do they do as a part of their “workout/collection services” do they skiptkace? Send someone to the home of the borrower, or just try to send letters and make phone calls?
  • How quickly do they typically see results with their borrowers and when do they file foreclosure if the borrower is unresponsive?
  • How fast is the money deposited into my account when I am successfully receiving borrower payments?
  • Is there an online portal for me to access my records, borrower payment history, borrower correspondence, etc.?

So start interviewing and hopefully you’ll find the right servicing company for you!

Calculating a Deal – The Method’s and the Outcomes

DealOrNoDealHead

Lots of people have different methods for calculating and analyzing their note deals. While there is no “perfect” or one solution, you need to know that you’re coming up with the right numbers for your potential profit as well as your expected costs so you’re not stuck with a unpleasant surprise half way through your workout. Today I’ll be focusing on how we analyze our deals, plan for costs, and ultimately decide to do a deal or not.

Analyzing

While the old pen and paper work here, if you are not utilizing technology, such as excel you are doing yourself an extreme disservice! Excel has AMAZING tools to automatically calculate percentages, basic addition and subtraction, to even calculating complicated algorithms. I suggest watching basic explainer videos on youtube or doing some web research  on how to properly create your automated calculations and save into a spreadsheet. I have one for calculating yields for payments over time (such as a re-performing or performing note), and one that helps me with the DIL or Foreclosure routes (see examples below). All I have to do is plug my numbers in and it tells me my yield! Talk about easy. It’s so much better than working the numbers into your 10bii calculator every time (although I love my 10bii calculator and use it every day for other reasons).

Excel Calculator for Notes

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Calculating Costs

I’ve noticed some investors low ball this area and I think it’s a huge mistake. I almost always round up and prepare for unexpected costs with every deal I do. I also ALWAYS prepare for the outcome of a foreclosure, meaning it’s built into my cost calculations and effects my expected yield before I place my bid. If the deal doesn’t make sense with those numbers, I counter, or move on to another deal. It’s always a potential and should be properly prepared for. Some additional costs I always factor in is servicing for 1 year. It if goes to foreclosure, I can expect (depending on the state) for my property to be tied up with a servicing company for roughly 6 – 12 months (sometimes more)! Even at the standard self-workout, non-collections fee of $25 – $35 that’s an additional $300 in a year. If you’re not prepared to pay that, it could effect your end yield. We also account for things like documentary stamps, property maintenance and security (which can be super costly surprise if you’re not factoring this in up front!), and forced placed insurance.

Deal or No Deal?
Ultimately, that’s up to you and you alone. Using the measures I mentioned above to analyze your deals will seriously help you determine if you move forward or not. I do want to remind you that it’s better to do no deal than a bad deal! You may want a deal bad, but remember you never want to be in a position that you want it bad enough to do a bad deal. Determine a yield % you expect in every deal that way if it’s above your required yield you’re good to go!

I hope you find this post helpful in understanding what better to prepare for in your deals and get you closer to a quick answer on each deal you do!

The 5 Things the Note Gurus Aren’t Telling You!

Note investing was how I got my start in the real estate world. At my very first REIA meeting one of the leading Note Educators or “Gurus” spoke at our monthly meeting. I didn’t know much about notes or real estate at all, but boy did they sell me on the idea of no tenants, repairs, and the prices couldn’t be beat! I was in. I bought into their program and have continued our education ever since. While their programs gave me a wealth of knowledge and resources, I quickly came to realize there were a few key items the gurus were leaving out in their pitches and courses and I was learning the “hard way”.  So I’m here to tell you what I believe are the top 5 things they don’t tell you upfront.

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