If you want to find deals that are worth bidding on, the key is to do pre and post due diligence. While most note investors paint this task demanding and time consuming, when you start breaking down assets things move a lot quicker. One primary strategy is removing the states and cities you have no information about or simply don’t want. This will allow you to look into cash flows and payment histories easier. Using NoteProz.com can also help you check values online. Learn how you can figure out your quick ROI and why you shouldn’t overthink when submitting your bids.
Listen to the podcast here:
Breaking Down Assets: How To Do It Quickly
We’re absolutely excited about helping you make some things happen for you. We’re going to be rock and rolling along on some assets, doing some pre and post due diligence on this stuff. I guarantee many of you will have a very busy evening with a lot of good questions to go through some stuff. We’ve got a lot of great stuff to go through with you about breaking down assets.
A lot of people are asking who is on Note Night in America. We have a variety of people. We have real estate investors. Some of you are out there buying different types of assets. We’ve got some fix and flips. We’ve got some landlords, wholesalers, residential and commercial. We’ve got people that are tired of the fix and flopping, the lazy landlords that are tired of toilets, tenants and trash out looking for note deals. We’re here for you, to talk about you. We have a lot of note investors, seasoned, new ones, people who have been in the business for a little while who are looking to hone their skills and people looking to get notes, either lending on note deals to either partner with us, We Close Notes, or partner with other people out there.
For those that haven’t joined us, I love to reiterate our big five-year goal for everybody out there. What we’re planning at We Close Notes is that we want to help over 10,000 note investors accomplish something in the next five years. We want to help educate and create. We don’t want to just educate investors, we want to create them. How do you create them? You go out and close on a deal. You go out and make something happen. You actually pull the freaking trigger. We want to create 10,000 real note investors and make some things happen in the next five years. We totally believe we can do that. We have an upcoming Fast Track training and I’d be remiss if I did not tell you.
It’s filling up fast. We’ve only got two spots left for February 23rd to the 25th. In our March classes, only two spots left so I really courage you. We are so proud of our Fast Track students from the last group. It’s exciting to see people taking advantage of what’s offered and going out and making things happen. It’s three days of one-on-one coaching with us at the office, you plus a partner or spouse, whether it’s your husband or wife or your business partner or somebody you picked up on the side of the road, I don’t care. We want to help put your business into overdrive with you. If you want to RSVP, drop me an email at Scott@WeCloseNotes.com or find more information about it. We’re glad to help. Those who are going to Fast Track training and become a part of our Note Mastermind group and we have an amazing Note Mastermind group planned in the next 90 days out in Cape Coral, Florida. This year is going to fly by. The Cape Coral Westin Resort, April 13th to the 15th. Contact Stephanie, our VP of Operations and my right arm at 512-507-5663 to get registered and RSVP your spot for Note Mastermind.
I’m glad to have you rocking and rolling. Let’s dive into the meat and the potatoes of this episode. I guarantee you are hungry. I know I’m hungry and I’m always excited to do these breakdowns for everybody, so let’s dive into it. Let’s get into breaking down assets. I want you to have something in mind. Have you ever just think about a movie that shows up on TV or you think about a movie and you’re suddenly getting your Netflix or your Amazon Prime account? “I’ve got to watch that.” One of my favorite movies includes the actor Christian Bale. It’s from the ‘90s. It’s a very advantageous movie based on what we’re trying to do when you’re looking at it and you’re breaking down assets. One of my favorite movie is American Psycho. He’s crazy in that movie but I find it humorous in some cases. What I’m trying to get at is this episode is all about slashing. It’s all about slicing and dicing, breaking your list down until you get something that you solemnly want, something you can run with and make things happen.
The first question you get when you get a tape is, “What the hell am I looking at?” Oftentimes, we see that all the time. People get a tape in, they’re like, “What the F is this?” It can be overwhelming. The first thing you’ve got to keep in mind when you get a tape in is you want to cut the fat. You want to slice and dice and get rid of a bunch of stuff there. You want to literally get your put on your jacket, whatever you need to. You want to cut the crap that you don’t want. You want to slice and dice some good old account. One thing to keep in mind before you start slicing and dicing though is figuring out what is your primary strategy. Everybody has a little bit different primary strategy when it comes to things. Some people want re-performing assets, some want non-performing. Some want stuff they can get to re-performing. You’re going to filter your list by what your primary strategy is. The first thing you need to do beside your strategy is go and get rid of the states and the cities that you don’t want. I will look at Illinois but I will get rid of everything in Chicago or Cook County. I’ll get rid of everything in New York or New Jersey. I’ll get stuff that just doesn’t make sense for me. If you don’t recognize the city, you don’t want it. If you don’t know where that city is or can’t recall it, it’s probably too rural for you. I also like to cut the crappy mobile homes. I’m not looking to that. I don’t want to deal with that. That’s my strategy. Some of you are very happy, “I’ll take a mobile home or an acre in Illinois or in Texas or wherever.” That’s completely fine. It’s okay for you to do that. What you can’t do is think, “I’m going to do everything here.” You’re never going to get anywhere.
You’re going to be sitting the next day overwhelmed because you have too much to look at. The idea when you get a tape in is cut the crap down and get rid of stuff. Sometimes you want to remove the low-value stuff or low unpaid balance. If they’ve got $10,000 or less in unpaid balance, you probably just need to go get rid of it. Look at cashflows. Look at payment history. You often sometimes will see 12 or 24 months of payment history on the very far right side of the spreadsheet. Oftentimes, you can add those totals up, how much did they pay the last 12 months or 24 months? If it’s nothing, it’s probably not going to be a re-performer. If it’s a hit and miss or you see they get double payment one month, and then no payment, and then double payment, they probably are entrepreneurs of some sort or self-employed or do something like that where they don’t get paid on time so they get caught up every time. That’s all about what you want to do with that aspect. I like looking at cashflows. All of that can be done very quickly. You can quickly slice and dice the fat off of your tapes, all that extra stuff to get down to the meat and the potatoes of what you’re looking for. Get rid of the states you don’t want. Get rid of the type of the assets you don’t want. I don’t want mobile homes. I want to get down to the areas that I understand and the value of the properties that I like or the stuff that has debt on them that are not going to shake down. Oftentimes too, if it’s a true first lien tape, I’ll often remove anything that has any assets if there are any equity. They give a value and it’s really low UPB compared to value. I’m going to remove that because it often doesn’t work in my favor.
This is upfront due diligence. When you get a tape in, you want to try to have a bid in within 24 to 48 hours. You don’t want to lollygag around and wait a week. I understand if you’re brand new, it can take a little bit longer. That’s okay, but you want to strive to start getting your tapes and slicing and dicing down, get it reduced down to where you’ve got stuff relatively easy to look at. One thing you’ve got to realize, if it’s a true non-performing note tape and the borrower only owes $50,000 and the house is worth $100,000, the bank seller is probably going to want to pay off on that. They’re not going to give you a big discount because if you foreclose, you’ve got a lot of equity. That same borrower is going to fight you for that equity. They’re going to drag it out. They’re going to do things. That’s why we get rid of the assets with a ton of equity. It just doesn’t make sense for us to drive those if that’s a true non-performing. Contract for deeds are a little bit different. I don’t like them with equity. I like them with negative equity where they’re underwater. There’s no discount and it’s harder to get the property back. You’re not going to get that equity. It’s not like the traditional fix and flip aspect of things where you’re like, “I’m going to buy a probate property. There’s only $30,000. They are subject to it. All that $70,000 of equity, that first goes to me.” That’s not the case in notes. You’re a banker, not a fix and flipper.
We have a question, “Are many of the tapes cherry picked?
Yeah. It depends from time to time on the assets and where the tape is coming from whether it’s been cherry picked. Sometimes it will be like a pocket listing, a pocket tape where if you’ve built relationship with the banks, they won’t have too much cherry picking. They wouldn’t have been picked over if it’s a fresh tape. If it has been around for a while, it may have been cherry picked over. The whole point is asking what’s going on. “Has this been out for a while? Am I the only person that sees this? How long until I have to submit a bid?”
The next thing you got to do once you narrow your tape down is to check your values. Usually, you want tape notes that’s been around for less than 30 to 60 days at the latest. This is online due diligence to begin with. That’s the beautiful thing about notes. You’ve got some flexibility in the values and your due diligence timeframe to check everything. The sooner you get your bids in on your assets or bids on the tapes of the spreadsheets, that gives you a bit more time in the backend. You need to realize you’re not going to pull every bit of due diligence on the frontend. You should not be trying to do everything on the frontend, especially if you’ve got to get a bid in 48 hours. You’re not going to have a chance for a realtor drive by. The first thing I tell people to do is to use your online values just to start with. We know Zillow and Trulia are wrong but take an average of them. Eppraisal, Zillow, Trulia, I will often merge them together. If you’re using Noteproz and if you want to sign up for NoteProz.com/ScottCarson or you still got that $27 a month offer to help you with due diligence, use that. That’ll help you give you a high-low aspect of things. Take that number that you find along on average and see, “Is it really underwater? Is there a ton of equity?” I know we’re using average values, you’re going to get more accurate values a little bit later on, but initially you got to find something that makes sense. If the asset manager gives you a value on the tape with what their value is as of the last 90 days, don’t trust it. You’ve still got to double check it because they could be just pulling the Zillow value as well. The only reason I look at first mortgage notes is because you’re not going to find that many seconds. Seconds are way overpriced. I don’t mess around with seconds. We’re going to be focusing on firsts.
We have a question, “How do you check equity?”
Just check equity between what they owe and what the value of the property is. If they owe less than the property’s worth, that’s equity. What I also like to do is check rent rates. I want to see what the market rent rate is for that property to look at, “Can be.” What’s it going to look like as far as a trial payment plan or a modification form or reinstatement? If the rent rate is higher than their existing principal and interest payments, I know that they’re going to probably need to reinstate. I’m not going to just drop the payment down. If the rent rate is less than the principal and interest payments, that’s what I have to look at to probably keep them in the property. Most of the time now, rents are going to be higher than their existing principal and interest payment is going to be.
The best way to confirm it is with your values in equity. You’re not going to call realtors on the frontend. You’re going call realtors during your final due diligence. If you’re going be buying notes, buying in just a couple areas so you can build your teams. Get on the phone, get your realtors ready as you’re looking in the areas. You’re not going to have time for realtors to take 48 hours to go out, do a drive by, send you back a CMA or a BPO. You’re not going time usually on the frontend. One of the things I like to do as well, what we do here with the staff in the office is we’ll use BatchGeo. It’s a free website. We’ll do this too after we’ve narrowed it down. We’ll throw them on BatchGeo then BatchGeo will pull values for you. It will allow for us to map the whole tape. We can go on Google Maps and identify what looks ugly. It links into Google Maps so we can see the dates of the Google Maps if it’s relatively recent or old. If it looks like crap from a couple of years ago, it’s probably not gotten any better, especially if the mortgage was written before the picture was taken. If it was written after at which you see that in a lot of contract for deeds where the contract for deed was written or sold after the Google Maps, then you definitely want to put eyes on the property to make sure it looks up.
If you’ve got enough information, you’ve got your rough value, rough rent rates, whether you’re going to keep an existing payment or have to modify, to figure out you’re quick ROI. Ask for pricing expectations. What are you looking for? Are you looking for 75% or 85%? That’s just not going to make sense. If they won’t give you a true price, 50% or whatever it is, then go off the Stair-Step Method. If you don’t know what the Stair Step Method is, that’s any asset over $50,000 in market value, they’re going to want 55% of that roughly. You have to compare that 55% with the unpaid balance to make sure it’s a number that makes sense for you. In the $40,000 to $45,000 asset range, 45% of that. In $30,000 to $40,000, 35% of value. Anything below $30,000 in value, you’re going to only probably offer around 25% of the value. You want the unpaid balance or what’s owed in the mortgage be a lot more expensive for that. You‘re going to take a percentage of the value. If there is a number on that, you still want to double check and pull your own numbers. Do not trust the BPO numbers. If a seller provides a BPO to you, you want to make sure it’s something relatively recent in the last 60 days and also make sure that the BPOs make sense. You want to still pull your own value to make sure they don’t have comps on their BPO that totally wipes out your values. You don’t want to be bidding on assets they say is worth $150,000 when all your numbers in the area say it’s only worth $75,000. What you want to do next then is insert a column and run your Stair-Step Value down there. If it’s over $50,000, 55%. If it’s in the $40,000 to $50,000, 45%. If it’s in the $30,000 value, 35%of that. If it’s below $30,000, drop it down to 25% of the value. Then what you’re going to do is take your twelve months, take your existing principal and interest payment, not PITI. Principle and interest multiply it times twelve and you’re going to divide that by whatever the price expectation is. Divide that by what the Stair-Step price would be. That will give you a quick rough ROI. I like to remove anything below 25% to 30% ROI because as we get closer being approved, you’re going to have that number come down. If you’re already starting at 25% ROI, just those numbers, it’s going to be down in the mid-teens and you probably don’t want to waste your time with it. You want to see the higher ROIs when you’re doing those calculations. Percentage on non-performing notes, you can do the Stair-Step of percentage of value.
You want to compare that number to the UPB. Make sure you’re not bidding more than what is owed of the note. Check taxes. This is one thing that can be done very easy by jumping online using NETR Online or picking up the phone and making a quick phone call. If you get the tape on Friday, you’re not going to be able to call Saturday or Sunday because those offices are closed, but you can check Monday morning. Check taxes online if you can and often it will tell you what it is. You want to make sure and check the names on the tax roll as well. Why? If it’s a non-performing note and Scott Carson is the borrower on the tax roll, it should say Scott Carson is the owner of the property. If it does not say, if it says somebody else, that should be a big red flag that it may have gone to tax sale. The exception to this is the tapes that we see with contract for deeds. Then the owners on the appraisal roll would be the seller of the contract for deeds. It’s not going to list John Smith if I’m borrowing from Harbor portfolio. If Harbor sold me a house on a contract for deed, the Tax Authority will show Harbor portfolio, not Scott Carson. If it’s an exorbitant amount of tax, I say over a $1,000, then you want to reduce your bid by tax. If they owe $200 or $100, it’s not worth nickel and dime if the numbers make sense for you in the frontend. If there’s an exorbitant amount of taxes, I’m saying over a $1,000, go ahead and reduce your rough ROI by the taxes owed. Then submit your bids in a clean thing.
I can’t tell you how many times we get bids that are just messy. All I want to see is what you want to bid on. Give me the assets, the asset address and your bid for the most part or the loan numbers, the address, the borrower’s name in the bid. I see people that filtered through the spreadsheets, they hide the columns and it just F the shit up. They have their formulas, they don’t make it clean. If you can do anything, submit your bids in a very clean organized spreadsheet. It makes it easy. Do not use a Google document to submit it. That’s a waste of time. Save them in Excel with just what you want. If there’s 400 assets on there, don’t submit for 400. Submit only the two or ten or twenty that you’re submitting on. I can’t reiterate that enough. Submit your bids in a clean spreadsheet. Don’t overthink it, don’t spazz out. “I would have to fund everything unless I submit a bid in.” We always know that’s not the case. You’re probably only going to have 10% to 20% acceptance rates the first time around. You’ve still got time to kill the bids with other due diligence as you get rock and rolling. Just chill. Don’t overthink it. Don’t spazz out screaming, “I can’t send the bids in.” It’s not that difficult. Let’s get in a quick ROI.
The reason behind this is if it’s a new tape, you want to control the bid. You want to try to get your bids accepted, so you control that asset. That asset manager’s just working with you. The asset managers hate going back and try to remarket an asset. Once they’ve given a bid or they’re making some bid offers or if they’ve awarded the bid, you have time to do more due diligence and you can make a run down your bid a little bit. The worst thing you can do is submit a lowball offering because you’re scared to death and never getting a counter back. You’ll never get any answer back sometimes. Submit a bid that makes sense. If the values come in lower, if you see tax when you make a phone call Tuesday or something like that or when you check your O&E when you get ready to close when you sell these liens, you still have the ability to reduce or fade your bid down. Don’t overthink it.
You submit your bid. You’re waiting there the week for your bids to be either accepted or countered. It could be a couple of days. It could be a week. Sometimes it could be a couple of weeks depending on who you’re dealing with. There are things you can still do. When you want to call the realtors to do a drive by, they ask for $50 for a drive by. Pay them $50. It’s worth going by to put eyes on there. The longer you wait to have realtors drive by, especially the more offers you’re having, the more pissed off your sellers are going to be because you shouldn’t be doing this alone. The biggest mistake I see people make is submit twenty offers then they’ll forget about it. When their bids come back like, “I need to have my realtors drive by.” You have a phone, you’ve had this week. You need to be doing this. If you’ve got to pay some money to realtors to do some stuff for you, its cost of doing business. There are some fees involved. I don’t order BPOs initially. I don’t like to pay for BPOs. I like to get CMAs and have realtors actually do the physical drive by. Ordering BPOs from BPO company, you’re just going to have problems and it’s going to be all over the place. I will use AVMs. If you want to use BPOs and that’s what people do, Automated Valuation Model I’ll have that sometimes happen on a high-end really fast if I don’t have that many to do or I’ll do that when I do have a lot that I’m ordering because it’s cheap to order an AVM like $11, $12 per line item. That gives me confidence for where I need to be at. You can also hire WeGoLook.com to go drive by the asset to take a lot of good photos and give you a good idea condition-wise.
Call the utilities department. Pick up the phone and call the power. Pick up the phone call the gas. Call the water department to see if the utilities are still on. Tell them that you represent the bank, if there is a balance that’s going to be left over when you foreclose. If you tell them that you’re with the bank, nine times out of ten, they will give you that information. You just have to ask for the information and you’ll be surprised at what the information you often get. Facebook stalk the borrowers. Google their names and cities and you’ll often find interesting information that will help with your do due diligence. LinkedIn stalk. When you see where somebody is working, pick up the phone and call, “Is Sheila there?” If you see a number on Whitepages.com when you’re stalking these people doing reverse lookups and things like that, if it’s a working number, dial it. See if it’s working. You don’t say, “I’m trying to buy your note.” You should not say that but say, “Is this Bob Smith from Ingleside High School?”or, “Is this Bob Smith?” “Yes.” “Did you go to Ingleside High School, graduated 1995?” “No.” “Sorry, Bob. Sorry to bother you.” I do that all the time. Why? It’s an easy out. I’m not calling to ask for the questions, but if I say, “Is Bob Smith there?” and they ask, “Who’s asking?” or, “Who wants to know?” I’ll say, “I’m looking for a Bob Smith. I went to high school with.” “Wrong Bob.” At least I know I have the right borrower. Does that make sense? It’s silly but it’s funny.
Ultimately too, don’t wait around the last minute to start marketing. Automated Valuation Model, AVM. I see this being the biggest thing that just drives me bonkers, especially if you’re part of some Facebook groups. It’s okay to post a picture of the property. Don’t go out there and just post, “I’m buying six deals in Michigan in Detroit. I need help funding.” That’s not the way to do. Share the sizzle. Take a picture that you’ve got off at BatchGeo or the Google Maps or Zillow. “Here’s the picture of the property we’re looking at.” Start sharing it with your database, your network, what you’re looking towards. If you don’t have that contract, don’t share the address. Don’t go onto a Facebook group and say, “I’ve got 23 assets that I got from a bank.” Don’t try to do that. That’s one way to get yourself blacklisted. We had that happened. Somebody posted, “I got 23 assets from fund,” and he got 30 people respond back in. The asset manager called me when he found out that somebody else was posting a list there. I don’t like getting a person blacklisted. It’s okay to start marketing. Share with your database. Post to LinkedIn, “I’ve got some assets I’m working on.” Share the stuff that you actually have under contract that you’re looking to get done. “Here’s what we’re looking for. It’s owner-occupied, working numbers, utilities are on, no balances, taxes paid. They are only four months behind because they’ve made payments. It looks like they’re still working. It’s basically what we can find. If they can reinstate, twelvemonths of payments divided by our purchase price of 35%, it looks like this will be a pretty good ROI on the frontend. We’ll know more if we get our final offers back.” Start sharing it a little bit. It will help you tremendously instead of trying to rush around.
The other big thing too as you start marketing and you start raising capital, start talking to people, start prepping your investors. “If we’re going to do this, I’m going to need you to fund.” Usually within 72 hours, somebody will be telling you that, “We’re good to go.” If we get approval on Tuesday, I’m probably going to need you to fund no later than Tuesday of the next week.” Start prepping people, “Is it with the Quest IRA?” “If it’s not with Quest IRA, who’s it with?” Start raising capital. Start talking to your funding partners because it’s going to save you.” “I’ve got to wait six weeks to transfer my IRA from my 401(k).” I hate that. “I got money but it isn’t ready yet.” “Where is that?” “It’s overseas in Iran.” Start talking to the people, start raising capital in those conversations. Now what do you do when they do answer then at that point? First of all, you take a deep breath and you start looking at what they countered back with. You re-evaluate your ROI with the counters and what you found during due diligence. If you found that the asset wasn’t worth $60,000, it was worth $35,000, you got to fade your numbers down. You’ve got to reduce your bids. Figure out what your ROI numbers are going to be. Look at your number and look at yourself, “This doesn’t make sense anymore. I probably need to kill it.” The fact that you’re buying these usually at $35,000, $45,000, $55,000, you want to make sure to leave room in there for your foreclosure, your servicing costs and any other fees you’re going to have along in the way.
I like to try to budget somewhere around $2,500 to $5,000 per asset, especially if it’s in normal state. If it’s in a longer foreclosure state like South Carolina or Florida, I’m going to probably average over $5,000. But I’m not going to do like some people, “I’m going to average $6,000 across the board.” No. Fast foreclosure states like Texas, Missouri, North Carolina, Michigan, you really don’t need more than $3,500. Are there any license request for buying and selling notes? Some states will require that. There are some states like Georgia, Washington State and some states that are requiring even debt buyer’s license. Not that difficult. I see about $2,500 to $5,000, it’s not $25,000. I don’t buy New York, New Jersey because those are two to three-year foreclosure timeframes. That’s when you start seeing over $5,000 in foreclosure costs. I avoid rehabs. I don’t want to do heavy rehabs. Paint and carpet is not a rehab. If it’s occupied, you’re going to have less rehabs. If it’s vacant, you’re going to have heavier rehabs.
Avoid the OTSC syndrome. What’s the OTSC syndrome? Oh, That’s So Cute, “The house is so cute. Oh, that’s so cute.” Avoid that. If you get in the habit where you’re going to start adjusting your numbers, “That’s a cute house. It’s so cute. I want that cute little house. It’s so pretty.” You’re facing danger. Big no should pop in the head. You’re going to run into trouble and you don’t want to do that because if you do buy an OTSC, you’re going to pay more for it and eventually at some point, you going to run into some problems. Don’t do that. If you like the bid and it makes sense, you have a realtor go buy the property, accept it and order your O&E reports. Get on that phone to ProTitleUSA, Alex Goldovsky, Bulletproof Title Due Diligence. ProTitleUSA, order your O&E reports. If you don’t like it, counter that bid or counter the bid back or kill the bid. It’s okay to push back and say, “No. I don’t like this because of this. We thought it was this but it’s got boarded up windows.”“No. It’s got a big power bill. I don’t like the area’s analytic crime. It’s far more rural than I thought it would be. I’m going to go kill it.”
We have a question, “Once they’re accepted, will ROI change your payment into your desired end result of the asset?
Yes. If I find out that it’s vacant, it needs to have a very high ROI. I need to be picking this thing up for nothing to do a fix and flip on it. I don’t like doing rehabs. But if it’s got to do, it’s got to entice me to do that or build the two offs, load that asset to a local fix and flipper. If it’s occupied and re-performing, I’ll still look at that 25% to 30% range and say, “Everything’s looking good. We’re still following along with that? Perfect. Let’s move on.” O&E report stands for Ownership and Encumbrances. I love BK Chapter 13s. Those are like re-performing loans. BK Chapter 13s are great. I have an attorney to talk to, he’s going to turn it to re-performing loan. I’m going to kick that mortgage out of bankruptcy, relief from stay, and start the foreclosure process. When you get an acceptance, this is where you better sure as hell pick up the phone and start calling your borrowers because you want them to be ready to rock and roll. You want them to get that money ready to wire to you. The last thing you want to do is do all the due diligence and never talk to a funding partner. This is where at this point, when you get accepted offers, you better send an email out to your database if you have not done this. “I got this great deal. Here it is. Here’s a great photo. Here’s a number. Here’s what we found that looks good. Here’s what we found that’s bad. Here’s the good thing and here’s what could happen on the worse side.” Communicate with your funding partners. Get them ready to go.
We’ve got a question, “What if payments are too far behind?”
If the borrower has not made a payment in the last two years, they’re probably not going to reinstate. That’s what we look at. It’s different on a case by case. Some people will buy stuff because they know they’re going to foreclose. I’ll buy in Florida when I know I’m going to foreclose there and they haven’t made a payment in three years or four years in some cases. That’s fine. I don’t want to foreclose. I’m going to pick it up and make money on the deal. If you have not done it this time, you better get your candy ass on the phone and get your realtor to definitely drive by it. If you are waiting around to do this and not done that, shame on you. You better then pay for them to go do it. If you wasted this week or four days or three days of not calling realtors, and you knew what the pricing guidelines and you fit into that pricing guidelines with the seller has wanted for you, and you wait around for a realtor, “I haven’t had my realtor drive by yet because I’m a lazy ass.” That’s your fault. You will have me chomping on your ass. I have chewed people’s butts out before. “I haven’t had my realtor drive by.” “You’ve had this for two weeks. Why don’t you have a realtor drive by and sent there? “ I wanted to make sure before I pay $50.” You’re a cheap bastard. Get on the phone and get it done.
It will save you some time and make it easier on everybody. You are the problem. You will soon find yourself not getting tapes or your bids not being accepted if you drag your feet. Before closing, before you show up to sign, before you get ready to rock and roll, these are the things you want to do. You always want to order an O & E, Ownership and Encumbrance reports. If you have not done that, order that, look at that, have that reviewed by your attorney, reviewed by ProTitle if you’ve ordered it from them. Always, always, always review the soft collateral file. It’s an electronic copy of the loan file. Always review it, take a look at it, make sure there’s stuff in it. You may want to pay Richmond Monroe $25 to do a collateral review. You may want to have your attorneys do a quick look over it, especially the foreclosure attorneys or you may want to have your servicing company do a quick review for you to make sure there’s not anything up there that’s going to tie you from foreclosing. If property is not occupied just because they’re bad, it’s up to you. You have to look at things on there on an asset-by-asset basis.
We have a question, “Is soft file a big file?”
It doesn’t have to be a big file. Soft file is a file on that loan. It’s a copy of what the collateral file is. It may be thick, it may be small. You want to make sure if it’s a note that you have all the assignments and the allonges there, the original mortgage in a note. Anything extra there is great. Each bank is a little bit different. Others are glad with a one-off. These days, a lot of them are accepting just one-off bids.
We have a question, “Who did you say could review soft collateral files?”
That would be Richmond Monroe, it’s a company that has a branch in Missouri. They don’t accept credit cards, so either wire it in or mail in a check, and they can take too long. You either have your attorneys or your servicing sometimes will do it, like Madison Management, they’ll look at your collateral files for a little bit. I have no problem looking at our stuff to see what it is because I’ve done it over and over and I know what I’m looking for. When you’re brand new, it’s probably best the first few that you have somebody look at it for you so you know exactly what you have or don’t have. Always, always, always put eyes on the property. You want multiple photos coming in. If you have not gotten a realtor and you have realtors with shitty photos, then you hire WeGoLook.com for $99 to drive by and take a bunch of pictures. Always, always, always put eyes on the property. If the numbers makes sense, then close. Sign that contract and get the damn thing closed. Wire in. If the numbers are tight, move on. Do not do skinny deals. Do not get deal-itis. Don’t do skinny deals because they’ll always come back and bite you in the back or bite you in the butt and you’ll be upset and you’re saying, “That’s not easy.” If the numbers are really tight and you start falling below at 20% ROI, move on. Don’t do the deal. It’s just too skinny. Honestly, there are some sellers out there that will sell some of the low-hanging fruit all you want. They’ll give you shit. Just push back. It’s okay to push back and say no. “This doesn’t make sense now. The assets don’t make sense.”
We’ve got a question, “If you have off-market deals, can I present them to you?”
No. I don’t buy traditional properties. I only buy notes. Let’s dive into the spreadsheet. I’ve got a tape from Val Sotir with Watermark Exchange. You got the loan number, the property address, the city, the state the zip, the borrower’s name, lien position, first lien. These are performing and non-performing, single-family residence. You have the occupancy stance, owner-occupied, not owner-occupied. These are all occupied assets. You have the interest rates, the Unpaid Balance on these, UPB. The original balance, the origination date when these were all originated. You see this originated all in the last two years. These are all fifteen or ten-year mortgages. These are all contract for the deeds, either performing or non-performing contract for deeds. Monthly payment, P&I, real estate taxes on an annual basis, the estimated market value and when the next payment is due to this day. Most of these are all paid relatively on time especially these that are performing and then the ones that are non-performing. Some of the values on these are pretty high compared to what the unpaid balance is. We have $120,000 and the value is $125,000. The thing to keep in mind, and we talked about this first off, one of the things I like to do is take the whole thing and either go to NoteProz and have them pull that due diligence real fast for me. For those of you that are signed up, we’ll do some quick initial due diligence and stuff like this. Also, I’d like to map the whole thing and go to BatchGeo.
It’s broken down and you have a lot in Gary, Indiana and a few stragglers around Indianapolis. The beauty is you can instantly see the geographic makeup and it helps you when you’re looking at assets. Literally, if you wanted to own half of Gary, you could check it. I’m not the biggest fan of Gary but I do like the Calumet City ones, you can see a lot of these. You’d really want to double check their crime maps on this. “These are in good areas. These are in bad areas.” Let’s check Calumet City. It’s north of Purdue University, north of Hampton. We have a house on the 960 Summer Street in Hammond. Let’s check what’s this deal on Google Maps. Let’s check what it says about the date on that. This one is October 2013. That is probably before our spreadsheet was created. First lien, non-performing note, owner-occupied, 9%. He only owes $10,000 on it, not a lot. Original balance was $11,000. Origination date 2-23-2016, fifteen-year mortgage, monthly P&I is $111. The value on this is somewhere in the $60,000. If $55,000, that does not surprise me. I usually like low balance stuff. By low balance, I’m talking $60,000 assets or less. When you start seeing some of these lower balances, that’s just not worth my time to pay this stuff. When there’s this much equity, they’re going to want probably 70% of the unpaid balance is what they told me. 75% for the non-performing, 85% for the performing because there is so much equity. I don’t like that aspect of things because I’m not going to pay $7,500 to possibly collect on $10,000. You should probably get rid of the low-hanging fruit. It’s not a bad looking property. If the balance was higher, they owed $30,000 on it, it was worth $60,000. If they were owed more than that, I would probably look at it a little bit more.
We have a question, “The reason these notes were created in the last two years, why is the interest rate so high?”
Because these are contract for deeds, sub-prime borrowers in the 9% to 12% range. I’ll look at when the loan was created see. You can see when the loan was originated, in 2016. You’re not going to see everything so realize that too. The loan was originated in 2016, fifteen-year mortgage and last payment date was September of last year. She performed for a year and a half. If you can’t get a deed in lieu on that one, if it’s a contract for deed and you can evict, that would be worth looking at. That’s what I’m going to look at. That’s why I’m still going to keep it green there because I might pick something up pretty relatively easy on the non-performing side. I want something that’s been around for at least twelve months. I don’t like to buy newly-originated loans. I don’t buy newly-originated loans that don’t have at least twelve months of seasoning. I’ve not done that yet. I know this lady did not pay down a lot of principal one time. Her original balance is $11,000. She went and paid $142. It’s a fifteen-year mortgage. We’ll check BatchGeo and then we’ll pull up good-looking assets. Let’s go back to slicing and dicing. I don’t like Gary so I will get rid of Gary. That’s going to save me and most of the stuff. If you like Gary, Indiana, great. You can pick up a bunch of cheap stuff, relatively inexpensive. That removed most of those 48 assets. Now, I’m down to a total of seven assets to look at. Not that difficult. That one looked pretty good. That’s why it’s a green good looking. I haven’t gotten the numbers on this yet, but if we check, there’s only one that gives a true value which is Kokomo Grill Association; helping hand store of home furnishings and crafts. If you want to own a warehouse worth supposedly $215,000 in Kokomo, there you go.
It’s a commercial property, it’s non-performing. Let’s do some Stair Stepping on this. The market value is $62,000, they owe $215,000. They’re way up down. It’s a perfect one. Estimated market value is $62,000. All these are over $50,000 when they say estimated market value. The original balance is not good. This is the only one that makes sense for us. Remember, I did say that they’d give us roughly pricing, owner-occupied. As Val said, “It’s a pricing model.” They’re off the lesser of either unpaid balance or the fair market value. This one note says the value, we’re not going to need 70% of that unless what we do on this because the value is actually higher so our bid will roughly be $34,000. That’s the highest that I would pay for this. It’s only worth $62,000. That’s our purchase price. Let’s check if they start get re-performing.
It’s just too skinny for the most part. Too skinny on these smaller ones, it just doesn’t make sense. It’s all below $30,000 so I’m not going to waste my time on any of those. The only one I would really look at though is I like this warehouse thing. There’s no way they’re going to start paying their monthly payment of $2,000 a month. I doubt that, especially at the value in a $60,000 range, but it does give me a lot of feasibility to look at some things. Can I get a decent warehouse and going to make some money on that thing? I still got to take a realtor. I got to talk to a commercial broker there, but at least this would be the one asset I would take a little more look at. At other times, I just would kill it and move on.
We have a question, “What are your thoughts on performing notes? Would you only buy them to hold?”
Yeah. I would look at the performing notes. If you want performing, why are they selling performing notes? They want to sell them because they want to recoup back what they made on it. Let’s run some numbers for performing notes. Let’s say you want performing notes, let’s get rid of the non-performing. They’re willing to look at selling this at roughly 80%, 85% of UPB. Let’s figure the 80% of the UPB. You’re going to see roughly around 10% to 14% cap rate. Then we want to take our twelve months of payments. Lots of cashflow coming in. Let’s figure our ROI based on our performing cashflow divided by what we paid for it, 15% yield. We only get about 20% to 25%discount on this stuff. Most some of these have greater assets, their values. If you look at this performing, this is where your numbers are. If you like performing notes, then there you go. It’s a way for you to leverage your risk across a pretty good sized little portfolio and making it somewhere. The average across the board on this is 17%. You might want to make roughly a 15% yield on your money after expenses and servicing costs. You’d be able to do that if you could pick these up at that price. These are all contract for deeds. They’re not Freddie or Fannie stuff. This is all contract for deeds, your performing contract for deeds that the guy has had in 2016, 2017, and some in 2015, he had it for a little while. I want to make 24% of my money. I would not offer 80 % on a performing note with low balance like that. If I did have to foreclose, I don’t know what’s there for the cashflow. P&I times twelve, that’s what the cashflow formula was.
We have a question, “Is this where rate comp would make sense on the warehouse property?”
Yes. That’s exactly where your rate comp would make sense. You also would look at rents on this to make sure, “If you don’t pay, you’re going to be moving out and paying more than $120 a month. You’re going to pay $500 a month.”
We have a question, “If you aim for a 30% ROI, is that easy to find relatively?”
If you’re making a lot of offers, yes. I would never pay 80% to 85% on non-performing. He was wanting 80% to 85% on performing. Stair-Step Method is not viable on performing note. I’m just going to let stuff go somewhere between 12% and 15% cap which is what you exactly see here. You see a 15%, 16% and sometimes a little bit more, because it’s lower balance stuff. I just don’t like this low balance stuff on performing. What you have to do with this is you start figuring it. “If I’m going to pay, how much are they going to charge me for a performing note and boarding fees?” You’ve got to add that up and it will often eat away that $150 a month payment pretty relatively fast.
We have a question, “Does owner occupied versus non-owner occupied matter to you?”
No, not really if somebody is in there making payments. Non owner-occupied means they can actually pay the rent. They’re going to be more motivated to pay because they’re using it for cashflow.
We have a question, “If you average 24%, do you offer 12% investors on average?”
We vary anywhere from 6% to 12% or split of cashflow or split of equity, it depends on the scenario. Personally, I think these are too high. Honestly, if I offer $0.50 on the dollar, 50% of unpaid. None of the numbers will make sense. You never know how motivated you have somebody until they make an offer. Now the numbers look a little desirable. Now the average weighted across the board is 27% for performing note. Now that’s not so bad. You’ve got to deal with it that these are all in Gary, Indiana. You want to make sure that crimes, it’s not in a bad area. That’s something you have to take look at. You’ve still got to do crime maps or drive by’s. If I was going to look at 30 assets, I’d fly to Indiana or fly into Indianapolis or fly into Chicago to make the drive by every one of these assets. The funding amount for the total 50% UPB only these things, only $212,000. I want to make sure too that this is being serviced with a licensed servicer, not John Smith is collecting payments for himself. There’s no reason to look at a borrower’s credit report. It’s only needed in seconds. The reason we don’t do it in the first is because you own all keys. Forget the credit reports.
We have question, “What are the pros and cons about seconds?”
Right now, there are no seconds. There’s hardly any seconds out there. Another con is they’re overpriced. You’re over the price and you don’t have as many exit strategies with seconds. I’m not a big fan. I don’t buy seconds. I’m only buying my first. For me to make any money on these things, I’m going to have a $30 a month fee, I’m going to have this. I got to be at $0.50 on the dollar or it doesn’t make any sense. Otherwise, at 80% I’m paying basically far for everything that’s said and done. I would just tell them that. Be honest with them. What would be hurting your relationship is if you sent in a 50% offer with no explanation why. It’s a right to use your engineering brain to say, “I’m going to overanalyze this, and here’s the reason I’m offering 50%.”
You just ask of the note is being serviced. You just ask, “Who’s servicing it? Can I see the payment history?” The Stair-Step Method when you’re buying traditional notes, anything in the $50,000, it’s 55% of value. $40,000, you go 45%. You’re going to get off unpaid balance. This is a contract for deed, a very different story. Low balance doesn’t make any sense for Stair Step on these.
We have a question, “What’s the most you would pay on a non-performing note where the redemption period is coming due?”
If this one is a tax sale then, I wouldn’t buy that note. You got too much equity there. It’s not worth it. Kill it. Contract for deed versus traditional, what’s the difference? Contract for deed is not a mortgage. The seller, like in this case, if I’m going to give a contract to you, it’s going to be a note but the deed is still going to show my name. That’s why you don’t get the actual deed of the property until the loan is paid off. You find that happening in a lower-valued assets of $50,000 or less in a lot of times. Most of the time, if there’s not a lot of equity, then you evict versus foreclosing too. If there’s no servicing record, big red flag. Definitely, don’t do it. If they’re self-servicing their own stuff, do not do it. Move on. The reason I mentioned not to buy from Granite is they overprice and they pull too many bids. Too many times, Granite Solutions gave us a portfolio of assets, they told us that we have it exclusively and lied, went around and market it off, told my investors, told my students like you, ”Your bids have been accepted.” Come Monday, “We sold to somebody else.” F that, I will never recommend them. They’re overpriced and they’re idiots over there.
We have a question, “What can we pay to get access to these tapes?”
Go register at WeCloseNotes.com. There are tapes coming in, if our Mastermind does not buy, you can get a look at them. It would probably be easier for you to come to Fast Track and join our Mastermind group. Our Fast Track dates for February are 23rd, 24th, 25th and March is probably the same thing.
We have a question, How do you handle people who do daisy chain notes?
I put them on a blacklist and I don’t deal with them. I don’t deal with joker brokers. The daisy chain is going to be somebody that sends his list to somebody else to send it to somebody else. That’s a daisy chain. I don’t give away my best source for notes. You need to come to the Fast Track for something like that.
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