A New Note Education Like No Other

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I’m EXTREMELY excited to be writing this post. It’s been a long time coming, and today is the day I can officially announce Note Investing Academythe newest, and in my opinion the best, non-performing note educational program out there!

Dennis & I started investing in Notes in 2013 when we were just starting our real estate investing education. At our first Real Estate Association Meeting one of the biggest guru’s in the business was pitching “investing in non-performing notes”. We had absolutely NO idea what a note was, and definitely didn’t know how to buy one for a profit. However, the concept sounded great; most of the business is run from a phone or computer, you don’t need lots of cash to get started,  (you can raise capital to invest), own real estate in your own state or nationwide (meaning lots of inventory and opportunities), and it can provide you with passive income or large sums of cash. We were sold! We signed up for his weekend course and even flew to Texas to attend. While we learned a lot, it wasn’t enough to really buy our own note deal: Cue the up-sell. That’s when when we were brought aside, and pitched one-on-one for a mentorship program that ran anywhere from $12,000 – $20,000 (now that same course is starting at $20,000 and goes up to $35,000)! I was 22 at the time, in my first year of teaching, and Dennis was a bartender. Let’s just say our salaries did not support a $12,000 shopping spree. There really wasn’t any one else offering anything better for cheaper, so we decided go big or go home. That day, we applied for our first big credit card (a suggestion from them…), maxed it out, and bought a $12,000 mentoring course. To say it was a lot of money for us at the time is an understatement. It was more than I personally spent for a four year degree in college! We were scared we overextended ourselves financially but we were determined to see success (trust us there were many sleepless nights until we paid the credit card off in full).

This “big” mentorship was online and structured to be independent/self paced. Point blank, it was not a mentorship. It was an online course. Regardless of the “mentoring” style, we applied ourselves. We listened to the weekly recorded calls, went through the online modules, and read as much as we could. After all was said and done – we still didn’t feel confident. We definitely gained a ton of knowledge about the foundations of note investing but the nuances of the business were minimal. There was no network for us to reach out to and when we did ask questions they often went unanswered. I remember we had a bid on a REAL deal and had questions about the collateral. When I got on the weekly call to ask our big mentor – the guy who pitched us the course to begin with, he gave us the runaround, avoided answering the question, and pretty much told us to look in the previous online notes and calls for an answer. Wow – that’s not a $12,000 answer if you ask me!

We are very thankful for the education we received and programs we attended as they gave us the knowledge we needed to create our Note Investing Business and get out of our 9 to 5 jobs,

We decided to sign up for another weekend course with the Note industry’s competing educator. Since we already had a solid foundation of note investing, we felt his course filled in a lot of the missing gaps and we quickly did our first deal just 1 month later. We are very thankful for both educators and programs because they gave us the knowledge we needed to create our Note Investing Business and get out of our 9 to 5 jobs. With that being said, it shouldn’t have cost of tens of thousands of dollars and there shouldn’t have been so many gaps from their teaching to what actually happens in the note world. They charged an arm and a leg because they could. They delivered what they thought was good information but wasn’t necessarily what we were expecting from the program.

Five years later, our business has grown beyond what we could have ever imagined. We’ve put nearly 2 million dollars to work purchasing non-performing notes nationwide and quit our day jobs because we not only replaced our normal incomes but exceeded our annual salaries. There is no doubt we are here because of the educational foundation we received from the two gurus we learned from, but frankly, much of the success we see today is from our self driven personal education and networking we have with other note investors.

In 2016, I started teaching a one day Investing in Non-Performing Notes class locally at my real estate association in Orlando. While I received amazing feedback at these one day seminars, often being told they learned more in my one day class than a whole three day weekend with the two gurus I mentioned earlier, my reach was still limited.

We are very thankful for the education we received and programs we attended as they gave us the knowledge we needed to create our Note Investing Business and get out of our 9 to 5 jobs,

So in 2017, I collaborated with Chase Thompson, (from the well known podcast, NoteMBA), and Kimberly Banks-Fawcett, (long term real estate investor and active Note Investor), to create Note Investing Academy. Our sole purpose for this program was to offer a better, more affordable solution to learn about investing in non-performing notes. The program is designed to not only give you a solid foundation of Note Investing, but to include everything that we felt was missing when we started out! We have 60+ videos jam packed with content that helps you understand the basics of buying non-performing notes, the numerous ways to profit with notes, the process you’ll go through after you buy your own deal, in addition to the important factors of building your business like branding, marketing, LLC creation, and mindset. We have an amazing Documents section that has loads of resources that we use consistently in our own business. We paid hundreds if not thousands of dollars combined for those documents and that knowledge when we started out. The best part – the price is super affordable! There is no huge up-sell. It is what it is, a great program at an affordable price. We hope to see you there and know you will love the program as much as we do!

TAKE ME TO NOTE INVESTING ACADEMY

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!

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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.

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!

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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Non-Performing Note Investing 101: Understanding the Basics

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If you invest in real estate you’ve probably heard about this “new” investment strategy; Notes. Over the past few years, investing in Non-Performing Notes (NPN), has becoming increasingly well known. The recent surge in popularity is due to current market conditions. You can read more about why the current market lends is self to such success in buying non-performing notes by clicking here. Although this concept is new to some investors, note buying and investing has been around for decades and is really not that “new” at all.

I often find myself reading various posts from assorted blog platforms, social media sites, and company websites discussing different topics involved in note investing. There are numerous articles on the benefits of note buying, the risks involved, and topics such as “the top 10 things to know before buying notes” but amongst those great articles I struggled to find a post that did a good job of explaining note buying and investing in NPN’s using laymen terms.

My company is a privately funded investment group that works with individuals looking for a higher return on investment.  Some of these individuals have never invested in real estate before, and because of this I’ve had to develop an “easy” way to help our partners understand and feel comfortable with investing in non-performing notes. Now that I’ve built up my experience I wanted to share the basic process of investing in non-performing notes and some of the common questions or concerns I encounter in a manner that anyone can understand.

Now I know this is a simplified 101 Guide and there are a lot of caveats to this industry that a “new” investor needs to be aware of. I suggest that any interested party work with someone who is experienced and well versed in this area of investing before venturing out on your own. As I said before, the process outlined below is what I typically use when I meet with private individuals who are interested in working with our company, Seasoned Funding, LLC. There is a lot that goes into buying a NPN that can positively or negatively effect your experience in this industry and if you are not knowledgeable and prepared you can easily end up losing money or worse, your investors money.

With that being said, and without further adieu:

The 101 Guide to Non-Performing Note Investing!

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What is a note?

A promissory mortgage note is a signed document that stands as a promise to pay a specific mortgage loan. This document outlines the terms, dates, and requirements to fulfill the promise. 

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What is a mortgage?

A mortgage is a loan document that is secured by real property. This document is used as collateral for the promissory mortgage note, in essence it is the security for the promissory note debt (it gives the bank/lender the power to take your property in the event of default).

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Is a mortgage and a note the same thing? 

This is one of the most common areas of confusion for someone starting out and the answer is NO.

A mortgage and a note are two separate documents that reference the same property and loan, but outline very different things. A mortgage can be anywhere from 10 – 25 pages and outline important issues, rules, and regulations for both the lender and borrower. This can be anything from payment of principal, escrow, late charges, to taxes, insurance, the right of forbearance, and transfer of property of beneficial interest.

A note is typically a 2 – 5 page document that specifically outlines the terms on which the mortgage loan is written. This document explains the interest rate, term of the loan (typically 15 or 30 years), prepayment, time and place of payment, and explicitly states the obligations of the borrower in signing the mortgage (including in the event of default).

Basically, the mortgage references the responsibility of the property and the note references the payment of the loan.

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Why buy a mortgage note that isn’t paying?

This is a customary question I am asked after explaining what I do and I love getting the opportunity to answer this question.

My answer is simple; “Because buying a mortgage note that isn’t paying allows me to step into the shoes of the bank and find a more creative solution than a commercialized formal institution ever could. Sometime this means I modify their current loan and get them repaying, and sometimes this can be relieving them of their debt by getting a Deed In Lieu of foreclosure or through the foreclosure process itself.”

I also love adding the fact that I’m able to acquire these non-performing notes or assets for a deep discount, typically 35 – 55 cents on the dollar, leaving an enormous margin of profit no matter what my exit strategy.

If you found this post informational take a look at Part II of Non-Performing Note Investing 101.