Is anyone buying notes anymore? - Posted by L

Real Estate Investing Real Estate Law
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Posted by JT-IN on August 07, 2011 at 10:31:10:

But with his established money base. I’m not in any way taking anything away from him, I don’t know him, or of him, for that matter. He has his niche and if it is working for him, then great.

The ony thing that I would add here is that the 75% (or 25% discount) on a new, unseasoned note, is probably gratuitous if we are talking the note being on a cream puff house. If on a barely liveable home, unseasoned note, the discount would be great than 25%, much greater IMO. I wouldn’t even agree to the 50% level on a barely liveable house… UNLESS this was from an investor who I had done a dozen deals, fully cycle with… which relates to credibility, and that is key.

Absent having that track record and that network of success, when you look for educated investors to buy the paper, you may experience a far greater discount than what is indicated. Again, just my experiences here. Wish you well on the hunt.

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Is anyone buying notes anymore? - Posted by L

Posted by L on August 05, 2011 at 17:05:27:

I watched a video someone here presented and the payoff in the technique used…comes from selling a note. I remember years ago when note buying was common and I had a friend whose business model was based on selling notes he created. I don’t remember what year it was but he got out of the business becuase suddenly nobody would buy his notes.

This technique involves creating notes on houses in the low end. Not bad neighborhoods but houses that are barely liveable fixer uppers. Is there a market for these notes? Who buys these? Are there commercial buyers or do you have to create your own?

Thank-you!

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notes anymore? - Posted by Nike

Posted by Nike on August 07, 2011 at 19:08:27:

Identify where the locals are rehabbing/landlording. Pick 1-2 zip codes and learn the market. You’re going to be surprised to find how many people are working the areas–investors/hard money lenders ('hmls"). Ask the local hmls what their criteria are and structure your notes accordingly. You may find it’s better to have the hmls underwrite the deals rather than creating the notes then selling them.

Forget about seasoning and concern over discounting your notes. Once you know your market you can structure your deals to make money.

You understand the idea, hiwever if you don’t go out and learn your market you’re going to create all kinds of reasons it won’t work. Once you confirm how much activity is going on and start talking to the locals you will figure it out.

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New notes never of value - Posted by John Merchant

Posted by John Merchant on August 07, 2011 at 11:56:00:

As a long, long time note buyer I can tell you I’ve never seen a brand
new note go for any substantial price.

Russ Dalby (now in trouble with law, fed & states) has always pushed
this idea in the courses he’s sold that all one needs to do is create a
new note then magically sell it but I can tell you that just doesn’t
happen.

Stop and think what YOU would offer on any brand new, unseasoned
note…then realize that other note buyers might just be as smart as
you and they won’t either.

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anymore? - Posted by Nike

Posted by Nike on August 06, 2011 at 21:15:13:

Find your local hard money lenders/investors. If you’re buying the homes cheap and selling to rehabbers/landlords then hard money lenders would be interested in buying your notes. Find out what their criteria are and structure your notes accordingly.

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Notes - barely liveable fixer uppers - Posted by JT-IN

Posted by JT-IN on August 06, 2011 at 14:31:01:

I can’t imagine what the discount rate would need to be to attract someone to buy such a note these days… 70%, 80%, 90%… DISCOUNT. In other words, you can’t buy low enough, meaning you would have to buy for between 1 to 10% of FMV in current condition, not ARV, to accomodate a buyer of such a note, because they are going to demand a 70 to 90% discount, IMO.

Others may have a different opinion, but my guess is that opinion wouldn’t come from someone who would potentially be throwing money at such deals. I do buy such things, and the discounts above would be what it would take for ME to get involved. For whatever that is worth. So if the house is worth 10K, might pay 1, 2 or 3K for the note… might not, just depends. I can tell you that I just bought one for 3K that is worth about 22K, if that gives you any indication. The note is in default and there is only one way to collect on it… spend more money to liquidate it.

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Re: Is anyone buying notes anymore? - Posted by Paul

Posted by Paul on August 05, 2011 at 17:10:38:

If u create a big enough roi you
should have no problem finding buyers

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Re: notes anymore? - Posted by L

Posted by L on August 07, 2011 at 21:57:35:

Nike I like your idea. It’s simple enough to find who is active in the area. I’ll get on the phone and see whose interested in what. The hardmoney lenders in particular. I’ll ask the landlords who might be interested in a “package deal” or notes.

The good thing is I speak the language so calling and asking hardmoney lenders and landlords what’s up will be fun. Good idea…thanks!

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Re: New notes never of value - Posted by L

Posted by L on August 09, 2011 at 04:33:49:

So as a notebuyer would you prefer to hold the deed or not? Note and deed of trust vs land contract.

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Re: New notes never of value - Posted by L

Posted by L on August 08, 2011 at 21:25:06:

So as a notebuyer would you prefer to hold the deed or not? Note and deed of trust vs land contract.

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Re: New notes never of value - Posted by L

Posted by L on August 08, 2011 at 17:58:08:

So as a notebuyer would you prefer to hold the deed or not? Note and deed of trust vs land contract.

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Re: Notes - barely liveable fixer uppers - Posted by GL - GA

Posted by GL - GA on August 07, 2011 at 13:39:48:

JT,

Regarding the note you paid 3k for, would you mind
expanding on that a little?

Was it a private investor, a bank (or some other type
of lending institution), etc.

Why are they selling to you instead of foreclosing
themselves? (I am assuming foreclosure is what you
were referring to when you said “spend more money to
liquidate it”)

Do you feel like you have an edge in the liquidation
process the seller of said note does not; or, are they
making in inaccurate valuation of the note when you buy
(for instance you have more specific market knowledge);
or, is is something else I am not considering?

Thanks

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Re: Notes - barely liveable fixer uppers - Posted by L

Posted by L on August 06, 2011 at 15:26:01:

So in order to sell these notes at 70% one would be relying on the greater fool theory? The presentation was done by Larry Goins trying to sell a course he has been working on. I like the technique but I thought selling a note on these houses at 70% would be tough. I guess he has private investors of his own who uh…pay too much for these notes.

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Biggest mistake note taker makes - Posted by John Merchant

Posted by John Merchant on August 09, 2011 at 11:20:37:

Whether I prefer note & DOT or REC depends on many factors.

Probably the most important is buyer’s credit and FICO score and I’ll
never take either note or REC w/o looking at his credit report.

Now like many (most?) of us I get various responses when I tell him
that he needs to order his free credit from one of the online credit
services.

Sometimes I get the story that he can’t/couldn’t and I even offer to
do it for him if he’ll give me written authorization, his SS# and $50
for the initial cost (which is refunded to me and then passed back to
him).

Sometimes he’s willing and cooperative and sometimes not.

If he’s not, then I’m done with him and won’t do business with him.

I"ve even had him give me a fictitious SS # (which is quickly and
easily checked online).

Probably get dozen or so calls a year by some note holder who
didn’t do this and now isn’t getting paid and frequently where the
non-payor can’t even be found.

I own and operate a foreclosure co and foreclose on mtgs and DOTs
in any state…and it’s more common than rare that note holder didn’t
get credit or SS# (because he was so eager to sell) and now has no
idea where delinquent debtor is or how to find him.

So do yourself a big favor and get his credit upfront.

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Re: New notes never of value - Posted by JT-IN

Posted by JT-IN on August 09, 2011 at 09:01:56:

L:

Not sure of your experience in the notebuying world… but your question doesn’t make complete sense here…

If you are a notebuyer, and hold a note, you do not also hold the deed. If you do accept the deed on a property that you hold a note on, in most states this will eliminate or defeat the mtg/dot due to what is called “merger”, meaning the mtg/dot is merged into the deed… and therefore gone forever.

So let me addres what I think you are trying to ask here… at least some theory on the subject, as I play the game. If I am holding a note, whether originated or purchased, the intended outcome could be one of several things… 1) Paid as agreed by the debtor, 2) Negotiated settlement or roll-up of the debt as a short pay, but paid off in full, 3) negotiated settlement as a deed in lieu of foreclosure, 4) acceleration of the note, which is foreclosing on the security interest via the mtg /dot, and eventually ending up with the collateral. All of these are designed to produce more income or gain than has invested in the note/mtg as originated or purchased at a discount.

In a perfect world we would buy a note at a discount and the debtor would pay up in full shortly thereafter, creating a yield or gain to maturity of 30-40 or 50%… Then repeat. Of course it rarely goes that way. So when we buy a note, we usually have a strategy of how to complete the transaction for profit. The shortest path between purchase and wrap up is usually the best, because with owning paper time is money… e.g. I could buy paper and double my money, which is great… especially if it is done in one yr or less. but if that scenario takes 7 yrs to complete then it is a horrible investment. So these things are time sensitive…

There are too many situations to generalize of whether one would want to hold a note/mtg or have the deed, because in some cases… maybe with comm’l property which can produce environmental concerns, maybe you never really want to be on-title. Where as a res situation presents far less hazard or risk overall. Without extraneous issues, I would normally rather convert the debt to equity, (note/mtg for the deed), in a negotiated fashion; although not always possible to do. Sometimes the owner is willing but there are other title concerns in which a foreclosure is necessary to expunge other liens and get a clear title. So as you can see there are lots of facets to your question and it is not a simple biz really.

Your other question… Note/DOT vs Land Contract…? Depends on whether you are the owner/seller or the buyer in the situation…

You’ve asked what time it is and I have begun telling you how we build the clock, not how to read it… but in RE dealings it is difficult to segregate the two.

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Re: New notes never of value - Posted by John Merchant

Posted by John Merchant on August 08, 2011 at 23:23:30:

Whether note holder prefers holds DOT or REC is going to depend on
a number of factors including where (what state) since foreclosure
laws differ state by state.

I own and operate a foreclosure co so I’ve done both a number of
times in a number of states.

To determine which you should do, find and read your state’s law on
DOT foreclosure and REC forfeiture so you’ll understand the debtor’s
rights in both procedures.

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Re: New notes never of value - Posted by Kristine-CA

Posted by Kristine-CA on August 09, 2011 at 11:26:55:

It sounds like maybe you don’t know the differece between note buyers and other types of RE investors. Note buyers don’t buy or hold deeds. They buy notes secured by deeds of trusts or mortgages.

Investors can sell property they own and for which they hold the deed using a land contract. At that point they own a property with a payor…not something that can be easily sold.

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Re: Notes - barely liveable fixer uppers - Posted by JT-IN

Posted by JT-IN on August 07, 2011 at 20:48:04:

The seller of the note and mtg if an institution.

They do not foreclose on any paper. They sell to the highest bidder, and in this case I was the only bidder serious enough to make the offer… and wait, and wait and wait until they decided that I was the best option. Often the case… LOL

The only edge that I have over the inst is that I will accelerate the note. It is not an extremely fat deal in terms of raw dollars but ROI will be huge. Of course I don’t generally care much about ROI; much more interested in the shoe-leather index. How much time and effot that I have to yield or donate compared to the raw dollars returned. This one should end up being so-so in that dept… but the overal amt of funds out of pocket is quite small, even after some legal fees.

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fixer uppers - Posted by JT-IN

Posted by JT-IN on August 06, 2011 at 19:39:31:

Maybe if you have a stable of investors who you have been dealing with, and have been buying notes from you, and you have paid like a clock… possible. Without that scenario, for-get-about-it… IMO.

You might get a few to bite at or near par, but no one that is a seasoned investor. Discounts on any new note, what is referred to as unseasoned, are drastic. now introduce the fact that these are on fixer upper houses, barely liveable… and - well kind what I said in the other post. Larry maybe can make this work… new notes on fixers, but not many others, IMO.

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Re: New notes never of value - Posted by Paul

Posted by Paul on August 09, 2011 at 11:14:38:

Not my question but very
helpful thanks JT. Also I
like the saying at the end