Week 7 – The Four Hour Work Week…Kind Of

This week has been productive and business focused. I’m reading a new book, The Four Hour Work Week by Tim Ferriss (if you haven’t read it you need to now). I’m about 1/2 way into and finding a ton of ideas to help myself cut back on work time and have a lot more me/play/family/free time. While it doesn’t happen over night, I’m starting to implement some of the ideas little by little and am focusing on the tasks that I can outsource now.

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Monday Feb. 8th – Sunday Feb. 14th, 2016

Monday (2 hours) w/o reading

  1. Read for 1 hour.
  2. Called 6 banks that I found were high candidates for selling non-performing loans using distressedpro.com. I got a live person or email contact with 3 banks. I left voicemails for 3 additional and 1 indicated they are not selling currently.
  3. Received updates from many of our vendors. Found out one borrower that was repaying didn’t make Feb. payment. Disappointing news, but the name of the game. Knowing it was always a possibility we are prepared to foreclose if needed.

Tuesday (1 hour)

  1. Got a new loan boarded with my servicing company and made sure the paperwork transition went smoothly.
  2. My attorney confirmed we have officially filed the 45 day demand letter for a borrower in NC. I also received a letter of indemnification from the original title issuer. After my attorney pulled title in preparation to foreclose, they found there were title issues that needed to be rectified before moving forward. I contacted the original title policy company, opened a claim and received the letter about 4 weeks later. It was definitely a set back in the timeline, but all is well and on track now.
  3. Read for 30 minutes.

Wednesday (4 hours)

  1. Closed on our newest deal in Pittsburgh, PA. Smooth, easy, and a $3,000 upfront pay day for us.
  2. Looked at new inventory and submitted offers on 4 assets. 1 was rejected (our pricing was way to far off from each other). The other 3 I should hear back from in a week or two.
  3. Started an account on EverNote (I know I’m way late to the game). I will be using this to store my business receipts, paid invoices, etc. for my new bookkeeper to easily have access to without a paper trail and conveniently located in the cloud!
  4. Hired a new assistant to help set up my bookkeeping using Xero. I found an extremely qualified and highly recommended bookkeeper on ODesk. I will be using them on a trail basis at first in hopes all will go well!
  5. Outsourced searching for qualified bank leads to sell inventory on distressedpro.com to one of my best VA’s. This will save me at least 1 – 2 hours per week.
  6. Inspection was completed for the sale of our property in Tipton, IN.
  7. Read for 30 minutes.

Thursday (3 hours)

  1. Monitored the work of our VA’s on a new tape that was submitted to us from a client on tapetechs.com.

Friday – Sunday (VACATION!)

Total Income for this Week: $3,152.59

 

Week 6 – Wheelin’ and Dealin’

I love getting a new deal and seeing a pay day in sight. This week I felt I got a lot accomplished toward my overall goals which obviously feels great! Take a look at the action this week.

Monday Feb. 1st – Sunday Feb. 7th, 2016

Monday (3 hours)

  1. Our Tipton property went on the market officially today for $52,000.
  2. Received the BPO back from our realtor for the new deal in Pittsburgh, PA. The value was right on point with our expectation.
  3. Paid 2 invoices to our vendors for recent work that was completed. Checked in the progress of our current deals.
  4. Explored distressedpro.comdistressedpro.com, which helps source non-performing notes and REO (foreclosures) direct from banks, credit unions, and servicers with BankProspector software. I had heard a lot about it but finally tried it our for myself. Lets just say its AWESOME! It really does help you find the exact banks in the markets your are targeting that not only are healthy enough to sell but see if they have a history of selling and are prepared to sell now. Instead of calling every bank I could, I now have a super targeted list of qualified banks to call.

Tuesday (1 hour)

  1. One of our borrowers called and wants to modify her loan. I provided her with our servicing companies info to get her income verification and see if a modification or forbearance plan will work.
  2. Received title back on our newest pending purchase in Pittsburg, PA. There were WAY more taxes than expected so I had to reopen negotiations. I was able to knock down our purchase price from $57,500 to $50,000.

Wednesday (4 hours)

  1. Got an offer of $50,000 for our Tipton, IN listing (only $2,000 off asking) just 3 days on the market! We accepted and will have inspection next Tuesday with closing on the 29th of Feb. Considering we’re all in this deal at $29,500, we’re expecting to see some great results in our total ROI (expecting a $16,000K profit and a total of 54% ROI!)
  2. Attended my monthly REIA meeting at CFRI (Central Florida Real Estate Investors Association). While I wasn’t speaking this time, I did volunteer which is always a great opportunity to meet and network with new individuals and really make myself present within the organization. After we had a few drinks with fellow real estate investors and talked really good shop! We got some great ideas for additional income streams.

Thursday (3 hours)

  1. Finally received the electronic collateral files for the Pittsburgh, PA purchase and 66599346had some major new findings. The borrower is contesting (although their case is not very strong) and there was even more taxes owed than the title report showed. Because of the risk we run with this borrower in particular and their past correspondence in regards to this loan, we renegotiated. We came to an agreed upon closing price of $40,000 (a $17,500 deduction from our original purchase price)!
    (In PA , to get the most accurate info requires a tax verification to be pulled. This takes about 10 days – 2 weeks to receive. This is why I did not have that information until the collateral files were sent).
  2. Looked at 4 new assets, decided not to place a bid on them. Just didn’t meet our buying interests.

Friday (day off)

Saturday (2 hours)

  1. Wrote this post.
  2. Updated a lending agreement, executive summary, and docs for our lender for Pittsburgh deal. We should be closing Wednesday.

Total Income for this Week: $443.95

 

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!

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.

The Dangers of Brokering

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When you start off in the real estate investing world most “gurus” or educational speakers suggest going into wholesaling or brokering. They talk about the benefits and ease of assigning a contract or mortgage for quick cash. The concept is great and works for many investors, but the negatives that are involved are almost never discussed.

My company, Seasoned Funding, LLC had success in a joint venture deal with two other investors, wholesaling a contract on a house in Central Florida in January of this year but we ran into our first real experience brokering a note this past week. It was a juicy non-performing note deal in Sanford, FL that was listed on a tape we had received from one of our direct contacts. We are in no way shape or form, exclusive to this tape, but took the time to go through and see if there was anything worthwhile. After doing some light due diligence we knew we had a deal. I decided to drive out to the property take some pictures to see it’s current condition and had a local realtor from our REIA group pull comparables and give me a valuation.

The following day we put in our offer and within an hour, it was accepted at $26,000! I immediately pulled an O&E report, which can cost anywhere from $50 – $100 and created a flyer to help us advertise through Postlets. We inserted the deal into our email-advertising host, Mailchimp, and blasted it out to all note investors, real estate investors, and connections our company has acquired on LinkedIn.

Within 30 minutes I received 3 emails inquiring for more information on the NPN. I knew this deal was going to close quickly! The inquiries continued the following day and that night, I met with a fellow investor who was interested in the deal.

Somehow, with all of the advertising our company did on this note, fellow note investors or the people that sent us inquiries discovered who the direct source was and went to the source placing a higher bid than our accepted price, yet lower than our assignment fee (even though our fee was only discussed with 4 people). The timeline for closing had not been discussed with the fund manager after our offer was accepted, and I assumed that I had the typical due diligence period of about 2 – 7 days. Two days after our offer was accepted, the fund manager called to state that because of the increased interest and bids on this note within the last 24 hours if we were not able to have the money wired to the fund by the close of the business week, (which at this point was the following afternoon), we would lose the deal.

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We were fuming! We understood the funds perspectives and were EXTREMELY thankful that they stuck to their word and honored our offer, but we just couldn’t believe that even though a NDA was filled out and NO fund names were disclosed, a fellow investor(s) had no qualms going behind our backs and jeopardizing the deal for our company who did the brunt of the work.

We called the investor we had met with the previous night and disclosed what was happening and why the sudden urgency to close. Luckily, he was extremely understanding, and got to work with his SDIRA to get all of the paperwork completed to get the funding wired by deadline. Even with the sudden urgency, the fund wasn’t able to provide the SDIRA with all of the paperwork they wanted/needed in order to fund, something that happens quiet frequently when investing with NPN’s and SDIRA’s.

When we heard the news we immediately figured we’d not only lost the deal, but lost $100 from pulling the O&E but to our surprise, the fund manager commended our work and agreed to extend the closing date to the following business day using one of our other inquiring investors that they had previously done business with.

We found out that the “inquiring investor” was in fact the one who went directly to the source in an attempt to cut us out and was attempting to continue to do so. We spoke with the investor on Friday, in which they said “yes” to our fee and interest in closing, but then told us they had no interest in the deal on Tuesday (expected closing day). We found out from the fund manager directly that they were now trying to buy the deal for the price we had negotiated leaving no fee at all, even though we had come to an agreement on a fee price Thursday! The fund manager once again stuck to his word and told the investor unless the fee was included, they were not able to purchase the note. He allowed us 2 more days to contact one of our other funders and were able to close the deal for our original asking fee, $6,000! It took a lot longer than expected, and had more complications than I could have ever predicted but we luckily were able to close – all thanks to the fund manager!

Point blank, there are some people that are selfish and unethical. I understand the reason you get into investing is to make money, but I have trouble understanding how a fellow investor could do that to a company that’s simply trying to do the same thing. If you ask me, if someone does the work in finding the deal, crunching the numbers, and pulling/doing due diligence; they deserve a fee.What I want investors to learn from this story is how to better protect themselves when trying to wholesale or broker a deal. If you don’t advertise, the deal won’t be sold but if you advertise you run the risk of other investors attempting to “cut you out of the deal”; it’s a double edged sword.

So here are a few steps we’re going to make sure we are taking in the future to better protect ourselves:

  1. Have ALL inquiring investors fill out an NDA (that has been approved/drafted by an attorney to properly protect you) before giving ANY information out. No matter how badly you want to close or need the leads, if they’re serious, they’ll take the time to sign it and wait for the information. You can state the area (provide pictures and details) but don’t give them everything right away.
  2. When advertising – DO NOT list the address until an NDA has been signed and returned and you’ve spoken face-to-face or over the phone with the inquiring investor(s).
  3. Have a clause within the NDA or a separate agreement that states they will not go directly to the source(s) if it is disclosed or discovered. Remind them of this fact when you send the NDA or have the NDA returned.
  4. If at all possible, discuss having the entire “marked up” price funded directly to the seller. After they have received the funds, they will wire you your fee. This will keep an investor from knowing your negotiated price and keep them from attempting to negotiate your fee down.
  5. If your fund is not willing/able to accept the “marked up” price and wire you your fee, get a brokering or wholesaling agreement signed stating that if they want to follow through with this deal they must agree to pay you a the agreed upon fee.
  6. Try not to disclose the source of the deal if at all possible! Delete their name from any Sale/Purchase Agreements or any documents that could eventually tell the inquiring investor(s) where it is coming from until they are ready to wire the money to close.

Now these are not always going to protect you. People will do what they want to do, ethical or not, but I’m hoping by taking this steps and being smart about your investments you can learn from our mistake and get another deal under your belt.