Week 14 – New Deal and Q2


Whoah- It’s 1st Quarter of 2016 already! I have to say while I’m not thrilled with how Q1 went, I know I still have several months and Quarters to take down more notes and reach my ultimate goal of making $120,000 this year. I’m well on my way and know I’ll get there as long as I keep working and keep focused.

Total Monthly Profit: $1,1994.17
Total Quarter Profit (Q1): $13,539


Monday March 28th – Sunday April 3rd, 2016

Monday (4 Hours)

  1. Reviewed the REO bids I submitted last week. Most were rejected, 1 was countered. I decided to pass after scoping out the neighborhood. The deal had potential but 1 block to the left was too rough, 1 block to the right was great. To wholesale it I wantedAbaco Ln Picture to be absolutely certain I’d have a buyer, and on the block I just didn’t have certainty.
  2. We got a new deal! Woohoo! Sent new JV Deal Docs to our JV partner & finalized the
    MLSA and Servicing Transfer paperwork with the seller. Take a look at it —–>
  3. Contacted three potential Social Media/SEO Marketing Managers to take over our marketing for our businesses.
  4. Submitted my newsletter article and advertisement for my upcoming CFRI Note Class on May 14th! I’m super excited to help educate my fellow Central Florida Real Estate Investors about all of the awesome opportunities in Notes!
  5. Updated my JV partners the happenings of my deals.

Tuesday (30 minutes)

  1. I’m trying to finalize a great deal in OH on a new NPN. I’m waiting to hear back from the seller if its a go or not. I’m also reviewing a deal in Riverdale, GA (not my favorite but has potential) from the same seller.

Wednesday (day off)

Thursday (2 hours)

  1. Updated invoice/receipts to Evernote for my Bookkeeper to reconcile within Xero
  2. Submitted an AOM to our attorney in PA to be recorded.
  3. Interviewed with 2 SEO and social media marketing experts for NoteInvestingClub.com and TapeTechs.com, our preliminary due diligence services. also reached out to several more for information and potential future interviews.

Friday – Sunday (Days Off)

Total Income for this Week: $606.85
New Sellers Contacted: 0
Offers Accepted: 0
Total New Bids: 2

 

Bradenton REO Case Study

Another great deal, bought and closed. This was deal was completed with a “JV Partner” (Joint Venture) and was completed in a whopping 47 days! Our company, Seasoned Funding, LLC acquired this deal from a note wholesaler. While this was our first time working with them, we have closed several more and are looking forward to completing many other home run deals like this in 2016.

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As you can see, this deal was a seriously killer deal. We ended up selling it for way more than we initially anticipated and in less time (both great things). There were some small complications with the original closing because the title company the seller went with did not understand our creative structuring. We securitized our JV partner with a 1st lien private mortgage with a lenders policy which was rejected by the closing company 3 times before they finally had legal review it and accept it!

We got clean up started right away but had set backs once again because it fell during the Thanksgiving holiday. We finally got everything buttoned up and on the market within about 3 weeks, and as you saw it was smooth sailing from there!

If you want to see some of other portfolio holdings, or find out how to get involved with our company and see returns like these, please visit our website, gives us a call, or email us!

Calculating a Deal – The Method’s and the Outcomes

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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!

Orlando Note Deal Case Study

I was talking with a fellow note investor the other day about past deals we’ve completed over lunch. While we both swapped stories of great deals and ones that required a bit more work than expected, I was asked if we send out case studies on the deals we do? I’ve heard of doing this before, but had never actually taken the time to make one for our each of our deals, and quickly realized now how terrible that is! I need to continue to put our past deals out there for other investors and interested lenders to see what we’ve done, how we’re doing it, and the real ROI’s were getting on these deals.

So without further adieu, here is our first case study (I say first because there will be many more to come). This was completed with 2 joint venture partners, and worked out completely by us (Dennis Smith and Liz Brumer) owners of Seasoned Funding, LLC and Note Investing Club.com.

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We purchased the note from a fund and began the workout right away. What you don’t see in the case summary is how challenging it was to find the borrower initially. She was living in Georgia but had “relatives” living in the property. Initially, they refused to give us the number, but then realized who we were and what we were trying to do and happily gave us the number to the home she was living in Georgia.

As you saw in the case study, the borrower had a judgement with a credit card company. This took quiet a while to resolve because it required an document signed by the borrower authorizing us to negotiate with the company. When we requested the letter from the borrower, she got scared and worried we were doing some sort of harm and went dark on us for an entire month. Finally, after numerous letters, calls, and pleas with her grandson – she refused to answer the phone, we helped he realize we were there to help and pay off the judgement, we just needed her consent.

It then took another month to receive the release of judgement from the credit card company and get it publicly filed so we had clear title to receive the DIL. This set us back about two and a half months into the work out. All in all it took about 6 months to successfully get the Deed In Lieu from the borrower and have it publicly recorded. From there we did repairs/minor renovations, and got the property on the market. While we got an offer on day 3 of being listed, it was FHA which required an appraisal that put the property $10,000 under what the buyer offered it for! We we’re super bummed about having to lower the price, but still were happy with our ROI.

There were some issues with title when closing, apparently the legal description had been incorrectly recorded for multiple sales and no one had caught it until now. This took another month to rectify which pushed closing back! Talk about frustrating! This deal definitely took longer than expected at 10 months but that’s exactly why you always over estimate timeline, costs, and potential issues that way you over deliver in both the time and results to your partners or lenders. All parties involved were very happy with the outcomes and results and are looking forward to doing more deals!

Parlaying your IRA into a Family Fortune

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I am in my early 20’s and most of my fellow investor colleagues consider me very young for the real estate game. Knowing that I’m starting earlier than most, I want to be ahead of the game financially and with that comes planning and preparation, especially with IRA’s and taxes.  With that being said I’ve been doing a lot of reading on the power of IRA’s and Tax Protection and just finished reading a wonderful book by Ed Slott, How to Parlay your IRA into a Family Fortune.

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The Main Idea of the Book:

You can “Parlay for your IRA into a Family Fortune” by setting up your Roth IRA to be given to a beneficiary (typically someone that is younger than you such as a child or a younger spouse) which allows something called a “stretch”. The beneficiary can continue to make contributions to the IRA growing and building your original retirement based on their  life expectancy according to the IRS, tax free, taking only the minimum distribution the entire time.

Let’s use an example from the book to make this a little more clear.

“Bob” leaves his 39 year old daughter, his beneficiary, a 1.5 million Roth IRA. Because of his daughters current age, the IRS says she has a life-expectancy for 43.6 years remaining to contribute to that IRA before the required withdrawal date. Now Bob was no dummy, he planned for this day properly, ensuring that the structuring of his estate and IRA allowed maximum growth and minimum tax payments (if he did not set this up before his death it would have been left to his estate and a large portion of his IRA would have gone to paying estate taxes). His daughter then inherits this money 100% tax free because of his structuring and now has the ability to continue growing that wealth by self-directing it getting a 8% return (which let’s be honest is a very feasible return this day in age). By the end of her 43.6 year life expectancy she grew the 1.5 million inherited IRA into $11,903,767 all tax free while slightly increasing her annual income taking the required minimum distributions! Talk about the power of growth!

Okay, you’re probably thinking “well I don’t have 1.5 million in an IRA for my kids”,  but the major point Ed Slott is trying to make in this book is the that the power of time, growth, and compounding interest work just as well in an IRA that is stretched with $100,000 or $1,000,0000. It’s tax free growth regardless!

In order to be able to STRETCH your IRA to maximize growth and contribution limits and minimize taxes you need to:

1. Get a ROTH IRA (you can do this by rolling over an existing IRA, 401K, or other traditional investment plan or if time allows, starting one while you are young).

  • Check with your IRA custodian to ensure they allow stretch IRA’s and can set up everything needed prior to your death to allow the stretch.

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2. Name a Beneficiary to each ROTH IRA you own. This can be 1 person or multiple but discuss with your custodian the proper way to do this.

  • There are a number of suggestions he gives in the book on this topic, and it is highly suggested that you keep your IRA beneficiary forms updated as much as possible in the event of death, divorce, or other circumstances. If this form is in existence after death, it supersedes your will and all of your IRA will be given to the beneficiary, hence the reason you want to keep it updated as best as possible.

3. Provide instructions and incentives to your beneficiaries to ensure they maximize this opportunity after you pass.stretch_example

  • You cannot control if your beneficiary takes advantage of the wealth building opportunity you provided to them or not, but you can however provide them incentives and the tools to utilize and maximize the stretch. Leaving them explicit instructions on what steps to take to properly stretch the IRA with a chart showing the possible growth vs. taking the money and paying 30% or more in taxes upfront.

Now I am not expert in this area, nor am I an accountant, lawyer, estate planner, or IRA advisor, so I highly suggest if you are interested in what you read here that you pick up your own copy of the book and explore the many details, laws, and regulations that were not discussed in detail. The book is extremely well written and easy to understand. It makes learning about growing your wealth enjoyable and exciting! I hope this blog helps you take the right step toward parlaying your IRA into a family fortune!

Owner Financing: Are you making it work for you?

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Owner financing has been around for quiet a while as an alternative to traditional lending. The term owner financing (also known as seller financing) means the owner of the property will hold or carrying financing for the buyer, just as a bank or traditional lending institution. A mortgage and promissory note will be created outlining the terms of the mortgage and type of loan including the agreed upon interest rate, length of the loan, etc. etc.

Although owner financing can be a great tool, it can only be done when a property is owned free and clear or there is a low remaining balance on the current mortgage of the property (typically 90% – 99% equity). Utilizing owner financing is especially beneficial when the buyer is unable to get approved by traditional lenders typically because of tight lending regulations. It can also come in handy when the buyer does not have a large downpayment to put toward the home, something traditional lenders typically require.

My company, Seasoned Funding, LLC specializes in acquiring investment properties in which the owner carries financing. Most sellers want 5% – 6% interest, with 20% – 25% down with a 3 to 5 year balloon. Terms that are considered the “norm” for the current market, yet that I feel are best suited for the seller. The short balloon payments and high interest rates can lend to limited or no cash flow,  negative equity, or a failure to pay the balloon when it is due.

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Our investments are unique in the fact that our owners will carry financing with 0% interest. Yes, I typed that correctly, 0% interest! We work a little bit different, in that our structuring of the loans create win win solutions for both the buyer and seller. We can buy the property they need to sell typically for what they are asking for it or more, we get the cash flow we desire with terms that make sense for both parties.

Structuring our opportunities to have 0% interest allows us to pay down the principal at a significant rate, creating instant equity and provides us the opportunity to own the property free and clear typically with in 8 to 10 years. In addition, we do not have to pay “all cash” to get the cash flow we desire or the equity we desire. We typically put 10% – 15% down for these investments, leaving us with more capital to invest in other 0% financed deals. 

How do we do that you ask? We’re not going to reveal all of our secrets but it revolves around a series of negotiation techniques that were taught to us in a mentoring program. We are in no way scamming, or conning the seller. They are aware of the terms, but have agreed that our offer provides them a solution that works for them and gets the property sold. investment-property

If you like this investment strategy and want to take your business to a new and creative level I suggest you find out more about the Power of Zero by visiting Real Wealth.

Part II: Non-Performing Note Investing 101: The Basics

In my most recent post I outlined some of the more common questions I receive when explaining that my company, Seasoned Funding, LLC invests in Non-Performing Mortgage Notes. (You can read that post by clicking here.)

Part II of the 101 Guide to Investing in Non-Performing Notes is focused on explaining how we invest in defaulted mortgage notes and summarizes what happens once we buy the note. As I mentioned in the first post, this is the 101 Guide to Investing in Non-Performing Notes and is meant to be a simple explanation for someone who is unfamiliar with this industry. If you enjoy what you read here or are interested in finding out more, take a look at some of our past posts or contact us to find out how to work with us in the future. We’ve had large amounts of training, education, and practice in this field and understand the in’s and out’s that aren’t explained in detail here.

Where do you buy these notes/assets? 

As trivial as it sounds, the average banker and most mortgage lenders have no idea that this niche of investing exists, nor can they point you in the direction of loan sales for their bank. It would be great if I could simply walk into a bank and ask for a list of their defaulted loans, but in reality only a handful of people from each regional/national branch handle the sale of notes (a small branch or bank may only have one person handling these sales).

With that being said, relationships can be built with the person in charge of bank NPN sales, but is typically done over phone or email and rarely has success. Most banks sell their assets in bulk (1-5 million +) to private funds that then sell them off for a slightly higher price to individual investors such as myself.

We purchase most of our assets from small private entities for around 35 – 55 cents on the dollar. Pricing expectations are typically based off of the Unpaid Principle Balance (UPB) or the Current Market Value (CMV) of the property securing the note.

Once you buy the note what happens next? 

This is a multifaceted process that can take on many shapes depending on the borrower’s current condition and needs. I like to boil down our “workout” options to 3 main strategies although there are many more:

  1. Modifying the Loan
    This means we take the current mortgage loan and promissory note and modify the terms to meet the borrowers current capabilities.  This can be a modification in term (timeline of repayment), raising/lowering the percentage of the previous/current interest rate, adding legal fees/arrearages (back payments), or doing a principal balance reduction.  The most important element in getting a successful modification is finding out why the borrower defaulted in the first place, and reassessing what they are capable of paying now.  *Modifications are a passive form of investment.  As cliche as it may sound, when we modify a loan and get the borrower successfully repaying, it is truly a win-win situation.  The borrower is able to stay in their home and build back their credit while we passively collect their monthly payments, including interest, over an extended period of time.  I also enjoy the fact that since we are not the “Home Owner” there are little to no responsibilities once the borrower/home owner is successfully repaying. No need to worry about repairs, maintenance, or vacancies. I love asking my inquisitors, “When you’re a homeowner and your toilet breaks do you call the bank to have them fix it?” No way! It is TRUE passive income!
  2. Deed In Lieu of Foreclosure (DIL)
    This exit strategy can be a great solution for homeowners who have moved on from their debt and are ready to leave it behind them. Often times the borrowers have already moved out or may have inherited an unwanted property/debt. A Deed In Lieu of Foreclosure is a deed instrument (a legal document that passes ownership, right, or interest to) in which the borrower grants the lender all interest in the real property. In return, the lender releases the borrower of their remaining debt. Essentially the lender gains title to the property in return for absolving the borrowers remaining unpaid debt. If a DIL appears to be the best option getting one can happen quickly and inexpensively. It can typically be written up by an attorney for around $300- $350. Many homeowners are unaware of this option and feel there is no other way out of their debt than foreclosure. A DIL can be a tremendous opportunity for both the borrower and lender. The lender is able to acquire the property at a much faster rate than traditional foreclosure (for much less cost as well) and the borrower is able to move on with their life, leaving their debt behind them! Not to mention, you do not have to report anything to credit bureaus or agencies as you would in a foreclosure that could further worsen the borrowers credit.Thus, a DIL option is not always the best solution. If a property has various liens or judgements (a lien that attaches to your property without your approval) providing a DIL can be an issue. Second mortgages, unpaid taxes, code violation liens, or judgements need to be taken care of prior to getting a DIL. If the borrower or the lender does not pay these or get a release, a foreclosure is the only way to “wipe” the debt from subordinate lien holders in order to clear title.
  3. Foreclosure
    When people hear that someone has defaulted on their mortgage, their initial thought is foreclosure. In most states, and this is definitely the case in Florida, foreclosure is a long, costly, and daunting experience. Luckily, on average, foreclosure is executed about 20% of the time as a means of an exit strategy. Foreclosure is typically carried out when the borrower simply has no desire to work with the lender in a modification or Deed in Lieu. It can also happen if a DIL is not a viable option. In this instance, the lender can initiate a “friendly foreclosure” in which the borrower does not contest (fight) the foreclosure. This greatly shortens the timeline of the foreclosure process. It is important to understand that every state is different and the process of foreclosure and laws vary from state to state. Knowing the laws of the states you are investing in is extremely important and no workout should be done without consulting an expert/attorney in that region or market.

After you modify the loan or get title to the property, what happens next? 

If a successful modification is produced, we hold the note in our portfolio, until the borrower satisfies (pays off) the mortgage in full, sells the property, or refinances. This could be 5 years from now or up to 30 years.

There are also many creative solutions that I won’t discuss in my 101 guideline such as partials or selling the note as a re-performer that can yield high return on investment (ROI) in shorter periods of time.

If I gain title to the property either by DIL or foreclosure I can sell the property on the retail market using a realtor or to an investor  for a “short term” cash-out. Another alternative is keeping the property as a rental or create an owner financed note to create a more “long-term” passive investment.

Either way, money is coming into my favorite bank, me.

What’s the catch? 

We’re typically asked “what’s the catch?” or “what’s the negative?” after explaining how we make a profit with non-performing notes. To be honest, there really is no “catch”. If your educated in the due diligence process and purchase the assets at the right price there very rarely is a negative side.

In our most recent investment, we purchased a note with two of our private investors in Orlando for $17,750. The property value was priced at $50,000 in great condition and $45,000 quick sale price. The unpaid balance (UPB) on the property is $62,950.

Because we bought the note at 36% of Current Market Value and 28% of the UPB there is an enormous amount of profit to make regardless of the exit strategy. THAT’S WHY THERE IS NO CATCH!

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So there it is. The 101 Guide to Investing in Non-Performing Notes. I hope this helps you have a clearer understanding of the basic aspects of investing in Non-Performing Notes.

If you’d like information or are interested in speaking with us about potential investment opportunities please fill in your information below

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