EP NNA 16 – Due Diligence For Dummies

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NNA 16 | Due Diligence

NNA 16 | Due Diligence

 

If you’ve never been to a note investing workshop, you may not know where to begin. One thing you always have to remember is once you make an offer and it’s accepted, it’s important to do due diligence. Due diligence, simply put, is making sure you’re getting what you’re paying for. You get as much information as you can about the property and fully investigate it for potential issues, including getting your eyes out there and doing a site inspection. Learn the three-part process of due diligence as Scott breaks down basic due diligence on your deals before and after you bid on an asset.

Listen to the podcast here:

Due Diligence For Dummies

We often get a lot of people asking questions about due diligence. We had a few more of the normal questions. I was like, “I’m going to go ahead and do a webinar on this to go through some of the basic stuff that you need to know for it.” It’s all about Due Diligence for Dummies. You are in the right spot hopefully for WeCloseNotes.com. We have a big goal. I always like to start the show off here with what our goal is. Five-year goal to help educate and create 10,000 note investors and we’re well on our way to do that, especially close to hitting year one’s goals for the most part and we’re still over halfway, which is phenomenal. We’re here. We cannot do it without you here, so looking forward to that.

Everybody is always wondering who is on Note Night in America with us. There are a variety of people on with us. Real estate investors, note investors, people looking to get into notes. Please do me a favor. Go to Apple podcast, look for Note Night In America. I would love it if you left a review there. Along with that, Note CAMP 5.0 is also on iTunes as its own podcast. We went over the 5,000-download mark. We celebrate our 300th episode of The Note Closers Show. It’s hard to believe that 150th podcast episode. We had 150 just pure Facebook Live stream episodes before we went to the podcast. The next one marks the 300th episode. It’s mind-boggling to me. When we started, I didn’t know if we’d get to 300 but we did and we’re going to keep rock and rolling. Thank you to all of you that listen, share it, download it, comment and we would not do the show without you. Thank you so much for being a big part of that.

We do have some upcoming events. We have the Quest Trillion Dollar Mixer taking place in Houston on July 10th. I’ll be a speaker there. There’s a Virtual Note Buying Workshop, July 20th and the 22nd. That’s definitely three days of how to find, fund and flip nonperforming notes. July 23 through 26, the Podcast Movement in Philadelphia. I’m going to have a very busy eight days of going from the workshop to the Podcast Movement and then going back across West Coast to Las Vegas for our first Note Boardroom of two days coaching with some great people out there.

We have our next Fast Track Training in Austin, August 3rd, 4th and 5th. We had a great Fast Track weekend here were some great people. The one thing is the next really big event that you want to look forward is our August Mastermind, taking place in Dallas on the 23rd and 24th. We have our Quest Expo taking place 25th and 26th as well that we’ll be a part of. If you have not bought tickets to Quest Expo, you want to do so now by going into QuestExpo.com and using the code WCNEXPO to get 25% off.

A great group of people coming in full Fast Track. Took them out The Oasis there for some sun and margaritas. We head down to 6th Street as well and had some fun and ran into a few pseudo celebrities down there having some fun. Most importantly, I’m excited at what everybody comes to my Fast Track of where they’re at and more importantly where they’re going. These guys are going to do a great job. Some have already closed quite a few deals. Eric Hyde already closed on 21 plus notes. Joe Tomko’s taking down some, funded some. Joe Kennedy’s taking down some, while Greg’s an active real estate investor taking some things. Scott Brown who’s going to do a great job as well. Gail Villanueva’s taking some deals as well, partnered up and joint ventures with other people. Looking forward to what these guys and gals do between now and August, kudos to them.

NNA 16 | Due Diligence

Due Diligence: Due diligence is a three part process. You’ve got the pre-bid, the post-bid, and the post-acceptance aspect of things.

Pre-Bid

I get questions all the time from people and I don’t mean they’re dummy questions, because they’re new questions for the most part. People asking, “How do I do this?” If you’ve never been to a note investing workshop, you don’t know where to begin and I understand that. Due diligence is very important. I see a lot of people literally flipping out before they ever get to making a bid or they end up deleting a tremendous amount of notes from potential bids. They focus on too much due diligence on the frontend.

I’m a big believer that due diligence is a three-part process. You’ve got the pre-bid, you have the post and then post-acceptance aspect of things. You have the pre-bid. Obviously, you get your tape in and then clean up your list a little bit to what you want to bid on and dive into. Your pre-bid is obviously about checking the value of the property compared to the UPB, the unpaid principal balance. Most of the time you’re going to want the unpaid principal balance to be higher. They owe more than what the property is worth. I’m talking first liens here. I’m not going to dive into seconds tonight because I don’t buy seconds. I only buy first.

Online estimates, you jump online, take a look at Zillow and Trulia. You get a rough idea what it’s worth but that is not your hard-fast value. You’ll have time for due diligence to get a hard-fast number on that asset. All you need to begin with is get a quick valuation online. Get a bid in, especially this is if your asset manager, the banks aren’t giving you a BPO within the last 90 days. This is assuming you got a big list and you’ve got a couple of days to get a bid in. You’re not going to have time to do all the stuff on the front end. I see people that never get a bid in because they’re too busy running over and making sure everything is right before they ever get the bid in. They submit a bid and that deal’s been sold.

I was talking to an investor because he was getting frustrated because they’d get a tape of 500 or 100. They’d identify three, do all the due diligence on three and make a bid. Four days goes by and those are already under contract with somebody else. The whole idea is let’s do some quick valuation, quick online estimate. You may want to use Noteproz to help you out with some of the stuff. To give you a high and a low real fast. Literally, you can run the whole spreadsheet in literally seconds. If you go to Noteproz.com/ScottCarson, there’s a special offer that they’re running for our students out there if you’re interested in signing up for it.

Checking taxes owed? Where do I find taxes owed? You go to the local county website. The easiest one to find all the county websites is NETROnline.com. You go there, you pick the state, the county and then you’re checking taxes at the county assessor’s website. See what’s owed and what the annual taxes are. Look at the size and location. If you see that it’s under 900 square feet or it’s a small house, it’s probably not worth wasting your time on. If you see it’s out in the boonies from mapping it fast or it’s in a small city of less than 10,000 people, or it’s on the outskirts of big city but out county roads, go ahead and delete that. Those are important things. You see it’s near a toxic waste dump from BatchGeo.com for mapping it, just kill it.

One of the things that you want to do when you’re buying a nonperforming note is the bank should have given you a list with the borrower’s name. That’s important for due diligence. You want to see if the borrower’s name matches up on the county records as the owner’s name. If it doesn’t match up, that’s usually a red flag. If you’re looking at contract for deeds, the owner of the property will often be the seller. We buy a lot from Harbour Portfolio contract for deeds. The borrower who’s on a contract for deed isn’t listed as the owner, it’s listed Harbour Portfolio.

On a note deal, you obviously you want to make sure that if it says Scott Brown is the borrower, Scott Brown is on the assessor’s website. If it shows somebody else’s name, you want to do a little bit further digging to make sure it hadn’t gotten tax seller’s wiped out. You don’t want to waste your time with that bid at that point, but those are things that can literally be done in seconds.

You want to figure out your pre-exit strategy. If the seller’s given you a rough pricing guideline, you want to look at what they say versus the valuate funding. If they say, “I want $0.60 of UPB and say the unpaid balance is$100,000, that means they want $60,000. You want to make damn sure that the rough value of the house is going to be over probably $120,000. I don’t like to go below 50% of fair market value when I’m buying. I want to be below 50% if I can, unless of course it’s on a faster foreclosure state like Texas, North Carolina, Missouri or Georgia. If it’s fast foreclosure, I may go up to 60% up to 70% at the highest. You’re probably not going to go through 70% though.

How to take a look at your pre-exit strategy. Is it occupied? Does it look like it’s occupied really fast? Do the photos look decent? It looks decent and then the rent rates, you should look into Rentometer as well. I’ll run my pre-exit strategy preferably to reinstate. I’ll run a formula all the way down that spreadsheet to reinstatement big numbers. What I’m going to be doing with that, taking the existing P&I multiplied by twelve, divided by the rough price estimate.

Modification, how much more is rent compared to the principal and interest payment? If they’re principal and interest payment is $450 a month but rent’s $800, market rent they should be out paying almost double. They give you some room and say, “Let’s add $100 to their payment to get them caught back up for $200 a month. I’m going to want them to bring a $1,000 or $2,000 to the table.

Deed in lieu foreclosure, I rolled that into the same but those are the three basic strategies that I’m looking at initially from running some numbers on a spreadsheet to help me out with that. That’s quick pre-bid stuff. This should not take you long at all. It should only take you a few minutes per asset. It’s not hard to jump Eppraisal, Zillow, Trulia. They are not hard, fast numbers. You’re still going to have a realtor drive by once you’ve gotten the bid accepted or the bid counter. You’re not going to waste time putting 100 realtors out there looking at 100 properties when you don’t even have the bid accepted. If you’ve got a couple assets that you want something to look at, we’ll open it up to make those available for me to jump on and walk you through some of the stuff. We’ll only do a couple.

I’ll tell you my philosophy. There are plenty of new note investors out there. There’s plenty of inventory, there are plenty of deals to go around. In the next five years, we’re going to see a massive change take place. There’s plenty of inventory. After you do your pre-bid, you go to your post bid. Once I’ve submitted my bid, I like to get my staff or we’ll do a little bit of Facebook stalking. Pull up the borrower in Facebook if we can or LinkedIn, seeing what they’re doing, see if we can’t find them on Facebook. Are they working? Can we tell who they work with? I’ll give you an example. If your borrower says they’re a dollar general store attendant or cashier, you can Google fast to see what general dollar store manager makes or cashier makes.

You can often find and see photos from in front of the property. We’ve used that before. We found it where one of our borrowers was a professor at the University of Missouri. Somebody was going through a transition. We have found that when a borrower says, “I bought a new car,” “You bought a new car? You can start making your mortgage payment.” Another borrower says, “We’re going to either pay a mortgage or go to Disneyland.” We know what you chose. I’ll jump on WhitePages.com or Spokeo.com too. They used to allow you to have a free account.

I have an account in the White Pages forever. If you’ve got to pay for it, it’s worth jumping on it because you get all sorts of information. If you do either a borrower search, pull up their address which will often give phone numbers or you do a reverse address search where you type in the address and it pulls up the person’s name. Often gives who they’re living with, family information, phone numbers and great stuff to use. Why? To use once you buy a note to track down the borrower for right party contact. To see if the phone number’s working at the house. I’ll do that.

If people have been through my Fast Track Training, have been through my Virtual Workshop before, you see me literally picking the phone up, calling that number and see if it’s active. Two years ago, I did one of those on a Note Night, and the borrower called me back that evening and was able to negotiate a loan amount about a month later. I was calling to see if it’s a working number. Phone numbers, relatives, places else they’ve lived, any other property they might have in the area too.

Post-Bid

Let’s find out the utility departments. Let’s call the city. Let’s check out to see if the water’s on, the gas is on, the power’s on. Getting the power is a little bit more difficult but the water and gas is relatively easy at each city. You call representing the bank, “I’m the bank. I’m calling to find out if anything is owed? If there’s a balance? If it’s on or getting ready to get shut off?” A lot of times you’ll get that information very easily. They tell you, “Water’s been turned off that thing for a year. It’s no longer an occupied asset.” You call representing say, “I am the bank on this property, I’m trying to see if the power’s on. I’m trying to see if the gas is on. I want to see if there’s a balance. Are they on time?”

The thing is if they’re on time, great. If there’s no balance, awesome. The great thing you can use is that, “I’m calling to see if Mr. and Mrs. Smith,” if that’s the borrower’s name, “If they have a balance. I represent the bank. We’re getting ready to foreclose on.” Say you’re with the bank. Another important thing is checking the crime map. You might want to do this on the frontend but it depends on the area. I check the crime maps to make sure there are not a lot of sex offenders in the area. Making sure there are not massive homicides around the area. I’m fine with some break-ins, speeding tickets or things like that for the most part but I want to make sure it’s on the lighter side, not the darker side on the crime map.

Obviously check rent rates. This is another important thing. For rent, one of the big things I look at if it’s a rent rate on a property is less than $500 a month, I’d kill it. It’s in too big of a hood area or too remote. If it’s less than $500 a month rent rate, that’s one sign I needed to probably go ahead and kill this bid. That’s not saying you can’t make money on areas in south side of Detroit, south side of Columbus or parts of Chicago. You have to expect to go on like an armored truck or a bulletproof vest. Some of my friends that say it’s a too AK area. Rent rates, it’s good for two reasons. One, market rent rate should be higher, a lot higher. That’s the motivation to get you reinstate. I’m not going to play this, “I can’t afford.” If you can’t afford me, you can’t afford to live in the area. You’re going to have to look at moving out. Use that as a bargaining chip with you, especially when you see what they’re doing on Facebook.

Post-Acceptance

Once the bid comes back accepted, then you’ve got some stuff to work on. If the seller comes back and says, “I accept your bid or your counter bid.” Let’s say they counter, the more due diligence you’ve done prior to them coming back and accepting, the better it is for you. I see people all the time that they’re like, “I don’t know the value of the property.” What do you mean you don’t know the value of the property? Have you at least looked online? Have you done some of that work? You’ve had two weeks. If you’ve got two weeks, you’ll probably need to reach out to a realtor.

That’s the most important thing you can do. If they came back relatively quickly, you obviously haven’t had time. You can literally get a realtor go out to take a look at it. You get a phone call or an email that they’ve accepted your bid or accepted some of your bids because hopefully you’re bidding in ten, twelve at a time. “We’ve accepted these three, we countered these nine,” get your ass on the phone. Start calling realtors or go to a nationwide BPO company. I like realtor drive-bys better. that way they can drive-by and see the asset and they can come back with a true comparative market analysis, true CMA for me.

I want to see the solds, the pendings and the ones that are listed in the area and how long they’ve been listed for. If the numbers come back good for your stuff, there are two things. People goof up a lot because they’ll ask often for a 30-day quick sale price. There’s nothing wrong with asking for that. That’s your motivated, “I’ve got to sell this thing quick,” number. There’s a difference between a 30-day quick sale price and then listing it and just selling it on the MLS. We can all agree to that. It will probably give me a $20,000 in quick sale price. What’s a 90-day price? A 90-day price is $80,000. Just expect it, it’s going to take you 90 days to get it sold.

“Is it in good conditions? Is it in bad condition?” Those are all important questions that you have to ask with your realtor and getting photos. Is there a wall missing on the one side where Superman went through? Does it have a sun roof or moon roof when it shouldn’t? Those are one of the most important things is you’re getting more information from the realtor than anything else. You want property photos. Looking online is one of the smart things to do. If you see a picture online, it looks like a good picture and it’s a relatively new photo, save that photo. You’ll be able to use that for marketing. You still want a realtor or somebody to drive by, take some photos for you so you can see the accuracy.

Hopefully the seller at this point, once they’ve either accepted your bid or gave it to you on the front end, they’ve given you the collateral documents, the loan documents. A copy, not giving you a hard file, the electronic files. Inside that there are going to be assignments and allonges, you’re going to want to review that. Deed of trust, mortgage and hopefully you’ve got the original loan documents on the loan, the documents that were in origination because there’s much information in there, especially if you find out where they worked when the loan went out, how much they were making, what was their job title, do they have any retirement accounts? They have other real estate, loan documents. While they’re not required for you to be able to close, they’re very valuable to help you out with seeing, “What the hell happened?”

Another thing that’s also nice to get is the servicing notes, if you can. Sometimes the seller has to provide it, others they won’t. Those things are the ones you want to look at inside a collateral view. If you don’t have the time to do it, hire somebody to jump on that and take a look at it for you. Whether it’s Madison Management doing the collateral file or another source is doing that for you. One thing that’s also important. If it’s a foreclosure file and you can see that the seller says it’s going to foreclosure. It’s not going to be a mod foreclosure process. You want to talk to the foreclosure attorney as part of your due diligence. Ask the seller, “Who’s the foreclosure attorney? I want to call to verify timeframes.”

If your electronic files are empty, that should have been a flag for you to reach out and say, “There’s nothing in here.” I’m not talking about hard files, I’m talking about electronic files. If your electronic files that you got are empty, that should be a red flag that you need to say, “Do you have the actual copy of this? I’m not going to fund on this deal until you find the copy of the collateral file.” There is some of the electronic file but the hard file shows up and it’s vacant, I would agree with that. Talk to the attorney. Have an email introduction. Talk to the attorney and say, “You’re going to buy this from Scott or getting ready to buy this from such and such. Can you give me a breakdown on where we’re at in the foreclosure timeframe? How much time is left? Has the borrower showed up?” All that good stuff. Not hard to do.

NNA 16 | Due Diligence

Due Diligence: If you see a picture online and it looks like a good picture or a relatively new photo, save that photo. You’ll be able to use that for marketing.

Once you get a bid accepted, you want to order an O&E report immediately. What is an O&E report? It’s an Ownership and Encumbrance report. The best company to get that from is our buddy Alex Goldovsky from ProTitleUSA. We’ve had him on in the podcast before. If you’re part of the WCN Crew, you would’ve gotten a copy of his book or it’s on its way to being mailed to you. He’s got a great book to read on title for you to help you out with some stuff. O&E report, $85, $90, it’s not a full title report, it’s a title update for the most part. You may want to go back two owners on that aspect. You may want to listen to Alex’s discussion on Note CAMP 5.0 that’s on the podcast. He did a great job going through some of the things to look for. Get on the phone, talk to them over at ProTitleUSA, they can offer to help you at that and see what’s encumbering a property.

We’ve got a good question, “How long in the foreclosure process do you not buy the note?”

It depends. If they’re selling to you at roughly $0.75 a dollar, it should be near the REO side. In Florida, South Carolina it’s a yearlong plus to foreclose. You want to make sure, if you’re paying $0.65, it’s close to foreclosure. You’re not going to pay it REO price, so keep that in mind. On the O&E report, it will also tell you other liens and judgments and then other encumbrances you want to take a look at. Make sure there’s nothing going to tie you up. Do not be scared if you see an IRA judgment or a tax lien against the borrower on the property, you can get that removed relatively quickly. The book I mentioned is Bulletproof Title Due Diligence with Alex Goldovsky, a great book to read, well worth it. It’s $19.95 on Amazon.

Once you’re good with property values, this is one thing to keep in mind, especially if you’re brand new, you may not know this. You’ve been on notes for the first time. If you see something on title that’s going to stop your foreclosure, you see something on the property value where it’s trashed out or it’s not worth what the seller is telling you it is. Never ever trust a seller’s BPO. Why? They’re always going to look at the shiny side. There are some sellers out there, you put their collateral documents, they’ve run three BPOs and are going with the highest and best, which is not what you want to do. Always run your own numbers and then share that stuff. If you’re going to counter back to seller, feel free to share, “Here’s the numbers that we’ve found. Here’s what our realtor told us compared to what you value that,” or, “There’s this stuff missing in the collateral file. Can you verify that it’s there?”

“Here’s our O&E report,” let’s talk about that, “Can you see there’s this big problem with the lien from the city or sewer lien,” and stuff like that. That needs to be cleared up. Use that information that you’ve done. Use the work to help you counter back, if you’ve got to fade your bid. It’s up to the sellers if they’re accepted or don’t. If someone accepted, then fine. They won’t counter or they agree to your fade. Just walk away. Maybe you can counter somewhere in between. There’s nothing wrong with that. Don’t be afraid to ask for a bit of a discount. What’s the worst thing you’re going to say? No. Don’t be one of these idiots out there and this is a true idiot play, where you’ll submit low-ball bids. You’re scared shitless. You couldn’t pass gas if you needed to and you submit low-ball bids. Your numbers come in for a pretty decent return at $15, you’re like, “I’m scared. I’m going to make an offer at $7.” Don’t do that. You’re only wasting your time because nobody’s going to accept your bid. You never get a response back.

We’ve got a question, “Scott, you’ve often said that you want to make sure that the UPB should be greater than the BPO or the homeowner will fight you for the equity.”

You mean that they will hire an attorney and declare bankruptcy, etc. That’s exactly what I’m talking about. If they owe $50,000 of house that’s worth $100,000, of course they’re going to fight you for that equity. They’re going to drag it out. You want to listen to a good podcast. Listen to the one we did with Shawn Yesner from Yesner Law out of Florida. He had some great things to talk about bankruptcy and things like that. What would you do, if you only owed $60,000 on your $120,000 property? You’re going to fight to keep that. Keep that in mind.

We’ve got a question, “You mentioned doing your ROI pre-bid, but you’ve also talked about it in the past that you also run a more detailed ROI including possible expenses. At what point do you do this and do you do this on a large number of lumps?”

Once you’ve gone through this stuff here, that’s where you definitely want to make sure your ROI makes sense. You want to go back to your ROI calculator and run the numbers. I like to throw in somewhere between $2,500 and $5,000 for foreclosure. If it’s on a longer yearlong foreclosure state, $5,000. If it’s less than six months, $2,000. If it’s somewhere between three and nine months, three and twelve months, $3,500. Talk to your local attorneys, find out what the costs roughly are. You have to realize if you’re buying ten assets, probably not all ten are going to go to foreclosure. Probably four to five, the other four to five will probably get a deed in lieu, Cash for Keys, get re-performing, something like that as well.

Where people goof up on is they look at one asset and their ROI calculator has every possible, potential, crazy ass fee on there and no deal ever makes sense. I’ve got the worst-case scenario. That worst case scenario you had, that doomsday is not going to happen most of the time. You just killed all your deals because you’re being over analytical. I hate to say this, no offense to my engineering friends. This happens pretty often with our engineers. There’s nothing wrong with having a good ROI calculator. Keep in mind you don’t want to have double fees. I know a lot of people have a hard time taking a look at common sense things like what’s the borrower going to do? The rent rate’s $800, mortgage payments $399. They need to reinstate. It’s pretty simple. When it comes down to it, don’t listen to the country western song a lot of time, if you don’t pay, you don’t stay.

What I’m trying to get at guys, go back to your ROI. Tweak it down a little bit, take a look at it, share it with a friend, share it with somebody else, a note investor and see if they’re on track with it, especially brand new. If you’re picking up assets below 50% of true value, you’ve got plenty of room there for almost everything, provided it’s occupied. I don’t like to buy a lot of vacant assets. I will in some situations, especially with appreciating markets. On the lower value stuff, $50,000 or less, I don’t want to buy vacant properties for the most part. Usually they’d been vandalized, usually the AC is walked off with the copper goblin showed up.

One thing you also need to be careful of too is if you’re buying a note, not a contract for deed, but a note in states like Minnesota or Alabama. You’ve got a yearlong redemption period on those assets. Could you potentially get the borrower beside the redemption rights? Yes, you can. Just don’t count on that. One thing you don’t see me talking about is hardest hit funds. I don’t waste my time bidding on assets that are in hardest victims. That is not my exit strategy. If that happens, great. It’s probably not going to happen. Keep that in mind.

“What about raising capital for your deals?” This question is like, “What about if I don’t have enough money to buy these ten assets I’m making bids on?” You’re probably not going to have all them get accepted. If you do the right thing where you start sharing your marketing, sharing what you’re doing to your audience, your tribe, your Facebook audience or LinkedIn, your email about what you’re doing, you won’t have trouble raising capital because you get the word out on what you’re doing. Pull your info. Keep this in mind as you’re doing due diligence, pull the info to market at the same time. What do I mean by that? If you find a nice picture of the property online or you find an old listing got interior photos of the property, save that. Photos, sell the sizzle. One of things I like to do is when I would find condos. I’m buying and can’t see my unit, I would find a similar unit with the same square footage so I get an idea what floor plan is and I’ll save those photos. That would help me out dramatically.

With an old listing, I would see that a property is previously rehabbed or is up for rental. Maybe they are rented out. Maybe they are renting at $800 a month and they’re not paying their $499 mortgage. Photos will sell the sizzle. If you don’t find a decent photo but you only find something on Google Street View, take a few minutes to move your cursor around and then print screen it and save that screen. At least something to talk about what you’re doing. If you’re going to post the asset, “I’m working on a deal,” have a good photo.

A photo is worth so much if people are taking a look at it. We have such a short attention span. You’ve got to sell the sizzle, “Here’s a great deal that we’re working on.” Another thing with the sizzle, if you’re buying this at a lower percentage of fair market value or a low UPB, that’s a deal. If you’re buying some that’s 60% or 70% of value, it’s not a deal, it’s a dud. Look at what percent you’re buying at and then roll it or move on to the next one. If it’s a dud, kill it and move on to the next one. There’s plenty of inventory out there.

NNA 16 | Due Diligence

Due Diligence: Looking at your exit strategy will get you your timeframe.

Looking at your exit strategy, it will get your timeframe. If there are 100 days on the market, it’s on La Grange Texas, you’re not going to sell it in 30 days. If you’re going to get it re-performing, you’ve got to look at that strategy being at least twelve to eighteen months. We get it re-performing and sell the note off. They’re not going to re-perform in 30 days usually. If they do, congratulations. You’ve got to take the time to realize that some of your workout costs, servicing transfers are going to take 30 to 60 days just to get to start. The modification, going back and forth and the people making payments and flaking off, it’s a process. Expect it to take twelve to eighteen months. It doesn’t mean it’s a bad thing if it takes twelve to eighteen months. Make sure that you understand that and you explained it, “This could be a great cashflow thing.”

Don’t rely on the borrower’s country western song. Go ahead, start the foreclosure process, start the legal action. Start the legal action so that you are able to get this thing to foreclose or it holds our feet to the fire. That’s also an important thing to share your marketing. “The borrower was not responsive. We’re going to foreclose on this.” Legal has already started. They’re halfway through a nine-month foreclosure process based on what the attorneys told me or we see it’s a vacant property, it’s in good condition. Here are the days on market. 90 days on market, sells with the exact same type of property it’s worth $90,000. We’re picking this up at $40,000 or $45,000. $10,000 worth of work, we’re still sitting in a good split position.

This comes down and then the final thing your realtors and vendors are really your most important key. Use that as your strength. So many investors out there are trying to do everything themselves and talk about everything in sales. I got attorneys that handle that for me. I got a servicing company helping me out with it. I’ve got a third party, SEAL team Singer who’s going to help me out with the workout, the reaching out to the borrowers.

My realtor is a rock star. Share that stuff. That helps you with raising capital because you’ve got this stuff in place. One of the best ways they say, “This is my expected ROI based on the numbers,” and always go the conservative side. Don’t go crazy on it because people won’t expect it will be crazy but say, “Based on some of the previous stuff we’re looking at, potentially it could be this. Based on this, this and this, what I found in due diligence, here’s the hard facts. Here’s what I expect to potentially see as an ROI.”

We have a question, “What is my average ROI over your portfolio?”

It varies a little bit different. I don’t do something unless I see at least a 20% to 25% return on my side.

“What loan servicer do you recommend?”

I recommend Madison Management of New Jersey. Shante Duffy and the whole team do a great job over there.

We have a question, “Do you only buy nonperforming notes?”

I only buy nonperforming notes and nonperforming contract for deeds. I like buying nonperforming stuff that I can revert to a performing note. I’m only buying institutional debt too. I’m not buying owner-financed notes. The only time I’d buy an owner-financed note is if it was originated with a true loan originator. There’s full title pulled on it and everything like that. If you have an address you want us to work through, I’d like to do a work through live one.

It’s all about due diligence. 2710 South Charleston Drive, Jackson, Mississippi, 39212. It’s a contract for deed. I will buy a lot of contract for deeds in most states except Kentucky, New York, New Jersey and stuff like that. I don’t buy them in Texas because you don’t ever see them in Texas here. I don’t buy them in Florida but I buy a lot in Ohio, Michigan, Indiana, Illinois all that stuff. Let’s dive into this here. By the way, if you go to Noteproz.com/ScottCarson, this is a really easy thing to do, a lot of upfront due diligence for you. Easy to do, great stuff. It is not my product. It’s just JD and Fernando have done a good job putting this thing together. A lot of people are getting an opportunity for it to get a dollar trial on it and then it’s $29 or $49 a month afterwards. Literally copy, paste the spreadsheet in. Don’t need the zip codes but the address is perfect. It’s a great thing to go.

Why not Kentucky CFDs? Because they’re a big pain in the ass to foreclose there.

We’ve got a question, “Under due diligence, you said that if a town is under $10,000 or past, how about if it’s near within twenty minutes of a town with $100,000?”

That’s a yes, as long as it’s not out in the boonies. I’ll give example. I’m in Austin, Texas. Twenty minutes outside of here are some decent cities and size. Great. It’s fine. Just as long as it’s not on a county road or out in the boonies.

We have Dan. This address is 2710 Charleston Drive in Jackson, Mississippi. I see the street view there. I click it on this. Not a bad little property but this is an old view of June 2014. It looks it’s a nice little neighborhood. Hopefully it still looks like that. One thing, if you look at the map, it often gives you a breakdown of what it looked like. When was your contract for deed originated?

I believe it was 2011.

It originated back in 2011. I would go pull up the current photo. It’s still a four-year-old photo so we still need a realtor to take a look at it. When was the last payment made, Dan?

There was one that posted in May. That made four of the last five but then it was pretty sparse before that.

I don’t know if you think the same thing too, but when I see somebody’s made four on-time payments but they were sparsely between that, it screams job loss or sickness. The fact that somebody has made four payments on the last five months, that’s really somebody showing they want to try to stay in the property. It’s probably occupied because rarely do people make payments four months in a row on a vacant property.

I’ve called the utilities already on this, so it should be occupied.

What did the utilities tell you?

They told me they’re on. They owed a couple hundred dollars on the water bill. On the electrical bill, she wouldn’t tell me what they owed. She would verify that it was on but the way she talked it sounded like they owed something there too.

A couple of hundred bucks on water is not too bad. Did you ask was it in danger of being turned off or not yet?

I didn’t ask them that.

Great job on doing some due diligence. What I would do immediately, Control P. Let’s print that dang screen there because that’s a good looking little photo of the property. Print screen, save that photo. What I always like to do is scroll down the search engine and see if there’s ever been a previous listing for it to be sold. 2704 is listed right now. That’s a nearby comp, it’s literally three houses down.

NNA 16 | Due Diligence

Due Diligence: If you see a property with a rent rate is below $500, that’s what you’d probably want to pass on.

Your house is a 1,732-square foot house, three-bedroom, two-bath. It says its estimated value is $74,000, which is a little high but that’s okay. Knowing that it’s in Jackson, Mississippi, one thing I would do is I would reach out Walter Wofford. Jump on WCN Crew and say, “I’m realtor in Jackson, Mississippi.” Scott Brown has been doing some stuff in Jackson, Mississippi. He might know somebody there to reach out to, which is great. I would assume and I know assume makes an ass out of you and me both, but figure this is a three-bedroom, two-bath, especially being a 1,732 square foot ranch. Zillow says $74,000, what’s the unpaid balance on this one?

It was $46,708.

Do you want to share roughly what your bid is and what you’re thinking about bidding?

It was low to mid $40,000s.

That’s the unpaid balance $42,000, $43,000? Even if Zillow is off a little bit, this borrower has got some equity. Especially the contract for deeds, this is a nice thing with contract for deeds you can evict faster than having to foreclose if they’re not making payments and stuff like that in Mississippi specifically. This is a great candidate. What’s going to end up happening is probably being a reinstatement. They’ve made five payments or four payments the last five months. What’s their P&I payments?

It is $424.

It’s not a bad principal and interest payment $424 because the market rent rates is probably $800 or something. $424 times twelve months is $5,088. You said it was low $42,000. Let’s just say $45,000 is the UPB.

I think it was 41% of UPB.

We’ll say we took it at $0.50 of UPB. Divide that by say $20,000. That’s roughly a 25.44% return, based off the beginning of reinstated. Do you know the borrower’s name by any chance?

Yes, I do.

If you check taxes, taxes up-to-date? Is the tax paid up-to-date? Are they a little behind?

On this one, they may have been a little behind. The taxes are paid up on this one.

Is it a Harbour Harbour CFD or somebody else’s CFD?

It’s a Harbour one.

The county records show Harbour being on it.

Will it have been sold since then? It shows somebody else.

James McDonald, Sr. I always like to change the location. James C. McDonald, Sr. I checked it out of Watson Quality Ford. He’s at the Piccadilly Restaurant. Let’s see if this is our guy. I don’t k now if that looks like a senior, it’s more like a junior, doesn’t it? Heidelberg High School, Jackson State, worked at J&M Trucking. When you click on J&M Trucking, now you’ve potentially got a phone number here to call to see if he’s working there still. That may have been why it was sporadic. Maybe he got laid off. There’s a phone number for them here. You’ve got to do a search for J&M Trucking in Jackson, Mississippi. Truckers usually make pretty good money for the most part. Let’s see what White Pages pulls up for us. I go do the reverse address first. James E. McDonald, was that the same name that you quoted me?

No, it was James C. McDonald, Sr.

That’s a positive. I like the last name matches up. It probably will give me the name and number when I log in. Let’s try this again. James C. McDonald right there, it’s 46. Maybe it could be your guy driving the truck. Age 46. We know that the address matches up, which is great. Let’s go to LinkedIn and take a look. Usually you get people in their 40s and 50s, oftentimes if they’re working they’ll have a working profile. No results found. He doesn’t have a LinkedIn profile. J&M Trucking, Quick Transport, Brandon, Mississippi, that might be it, 601-212-2895. That would be worth having for the heck of it you checking that out.

We have a question, “Didn’t you say you do not like NPNs with equity and see the valuables, but did you say you could get this at 50%UPB?”

Yes, usually it’s nonperforming, oftentimes I’m not going to go off 50%. I’m going to stick to that 50% of UPB. That’s my initial offering on that stuff. That’s something to keep in mind. This is probably going to reinstate because there’s an equity. I wouldn’t go below 50% of UPB because it would really be too low ball an offering based on the equity side of that, especially with this being a contract for deed. Contract for deeds are likely to evict more so than foreclose. It’s a different story. It works in our favor to work with the borrowers on this. That’s what you’re thinking. Is that right, Dan?

Pretty much exactly, yes.

You checked taxes, taxes were paid up-to-date. What else? Am I missing anything else on this stuff initially? Have you looked at the collateral file yet?

Yes, then Joel Markovitz reviewed that and that’s all checked out. The only thing I’m waiting for is a BPO from Sand Castle and the pictures, which I should have. If that all checks out then I should be good to go.

If you can get this at $20,000 something, it’s a deal.

We have a question, “I’ve got a list of CFDs and I got now, nonperforming. All have tenants under $500. Should I pass on all of these?”

No. What I said is if you see a property with a rent rate is below $500, that’s what you’d probably want to pass on. See if the contract for deed is something that will not pass it at $500.

“Do I typically pay more for CFDs versus regular nonperforming notes now?”

No. I usually pay less for CFDs but you have to keep in mind if there’s a lot of equity, I’m going to go up to about 50%. If it was a true sales value was $40,000 then I wouldn’t bid more than probably $16,000, but the values in probably $70,000or $60,000 on this is why I go up a little bit because there’s an equity in the backend side.

NNA 16 | Due Diligence

Due Diligence: Information is there everybody for you to reach out to. We don’t have to do a lot of upfront due diligence.

I’m getting this one for under $20,000.

Yes.

Thanks.

You’re using your own funds or are you going to raise capital for this one, Dan?

I’m going to raise capital for this one. I’ve got my own funds to cover it but I’m looking for funding for this.

Even if you fund with your own funds, you’ve got to be ready to be arbitraged out to pull that stuff out. You’re picking this up at less than $20,000. You’ve been under contract already?

It’s not under contract yet but I’ve got the bid accepted and I went back and forth with the seller earlier.

You want to share what your final number is?

It was $19,000.

What was the monthly mortgage payment on this again? It was it $424?

Yes.

Times twelve equals $5,088 divided by nineteen. That’s a 26%, 27% yield based on if they get reinstating. You’ve got a great picture of the property. You know where the person is working. Collaterals clean, taxes are paid. Utilities may have a little bit of a statement, but that could be a rolling 30-day thing. Somebody’s lived there for at least four years. They’ve got $30,000 in equity, potentially, based on what the realtor says. You shouldn’t have a problem finding a JV partner on that. If they don’t pay, we’ve got $40,000 of equity take back. If they do pay great, you’re making a 27% return. You can probably ask for them to pay a little bit extra to get caught back up. How many total months behind there for them? Do you see when the next due?

The next due is February 17.

They’re still a year behind?

Yes.

He’s sixteen months behind. Sixteen times four, he’s basically about $6,000 behind. Let’s say you make it $624, because it’s still below market, rent is times twelve is $7,488 divided by nineteen. That’s almost a 40% yield if they’re going to pay $200 extra a month. It’s a homerun.

We have a question, “What ROI do I look for on a CFD?”

I don’t want it below 24% because if I’m splitting cashflows with the investor, I want to be at least a 25%. We’re seeing both 12% roughly.

We have a question, “Where would someone find an investor to help with this?”

You post it to your LinkedIn. Do an email blast to your database. Do a post to your Facebook profile. Do a post to your groups you’re a part of, whether it’s the WCN Crew or other groups you’re a part of. Dan, you could probably find somebody in the Denver area who’s looking to invest in something by posting it on a Meetup group. Have you done anything on this? You’ve done some capital raising some of the other deals. Anything else?

On this one, I sent an email to my preferred investor list. I’m having a phone call with somebody. There’s been a little activity. I haven’t gone crazy with blasting it everywhere yet because I’ve been waiting for the BPO to come in, that reviewed and get finalized. I need to go back and get some other documents for him. I’ve been waiting for everything to settle out a little bit.

Would you mind, if somebody’s interested on here tonight, if they reached out to you to potentially fund this deal?

Yes, absolutely. You can find me at Dan@FusionNotes.com or 720-988-8024.

You can go FusionNotes.com anyways. It’s your website too. You found the CFD because you just got a list from somebody, didn’t you?

Yes, exactly.

You’ve closed a few deals before. How many deals have you closed so far?

I closed a couple before. I closed ten total so far. I’ve accepted on three, I’ve actually got this one and two others that will be closing on hopefully.

Congrats. I’m very proud. Good job. Thanks for jumping in and being a part of it here. Information is there for you to reach out to if you’re interested and keep me abreast of what’s going on with that. The thing is we don’t have to do a lot of upfront due diligence. Obviously, Dan said that he reviewed the collateral and reviewing that stuff is great. Based on just the information and then when we found one, I would have made an offer on this. You’re going to know the UPB, you’re going to know when the monthly P&I payment is, you’re going to know when the last payment was made. You’re going to see that, “They made four payments in the last six months,” that’s a good sign.

$42,000? I’m probably going to offer around $20,000. He got it at $19,000 so right on track. For that, market rent rate is $800. If it’s valued $70,000s and is $40,000, that’s a good sign that borrower wants to probably stay in their property. We’re not going to look to foreclose. That’s going to be a hit it out of the park, modification reinstatement and get flexible with it in the last year, last sixteen months of payments. Somebody is willing, has been paying on time recently. I will make my slides available. I’ll throw them up on SlideShare. It’s there for you. Just look for Scott Carson on SlideShare.net. That’s all I’ve got for you. I thought we’d go through that one. That was perfect. Dan did a great job jumping on there. Hopefully, this was valuable for you. It’s not hard finding deals. Dan’s reaching out. Other people are reaching out. There are still plenty of deals out there.

We have a question, “Why would I want to bring 10,000 note investors with the market being like that?”

We are going to see another downfall in the economy. We’re going to see another huge change and there will still be plenty of inventory that’s being created right now. That doesn’t mean everybody sticks to the game. Not everybody sticks to the game. People come and they flake off or too busy running around doing a multitude of other things. That’s my big belief. That’s what I see. We can help 10,000 people become note investors, this place will be a whole lot better off.

Other than that, if you’d like to get signed up for our next Virtual Note Buying Workshop, it’s July 20th, 21st, 22nd. We spend a whole lot more time going through due diligence. That’s a good start. Get signed up for that. It’s $699 a ticket, that’s good for you plus a spouse or a partner. You also get the replays and the previous workshop, plus we record it as well. That’s all I’ve got for you. Go out and make something happen. We’ll see you all at the top. Thanks for joining us on Note Night in America. Thanks.

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