The best way to start reviewing note deals is by jumping on WatermarkExchange.com and Paperstac.com to review performing and nonperforming notes. In this episode, Scott Carson gives practical advice on how you can find your first note deal on note sale platforms. Tune in and learn how you can identify a quick deal, perform quick evaluations (depending on your money costs), and why it doesn’t hurt to submit bids and ask questions. Plus, you’ll also understand why your focus will vary depending on the expectations on returns when using your own money instead of other people’s money. You wouldn’t want to miss this episode!
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How To Make Your First Note Deal On Note Sale Platforms
Glad to have you here. It’s good to see all of you join us. We have got some stuff that we will talk about. I want to give the biggest shout out to all those that attended our Note Weekend Training. Also, to all of our folks and VIPs from our 20-Day Note Investing Challenge who joined us on the bonus day on Finding Funding where we spent a big chunk of the day going through the twenty lessons on finding and funding deals. Kudos to you all of you who joined. We joined both times, which is great. The whole idea behind this is we have people come on workshops like, “How do I find deals? I can’t find any deals.” Blind men walk and you can find nothing? That is not the case. There are a lot of deals out there if you know where to look. You don’t have to pick up the phone and dial for dollars unless you want to. I’m going to show you some ways for you to hit your targets. Let’s dive into the stuff.
We all got to start somewhere. I know many of you are getting started off the same way. How do I know this? I talk to you. I listen. I take phone calls. I answered my own phone. Shoot me a text message, I will call you back or put you on a schedule. We all start with a variety of things. What has happened in the last couple of years is most people are getting their start into the note business by coming across something on YouTube, one of our videos on YouTube or you binge in a bunch of other people’s stuff or are listening to different real estate podcasts, hear me speak about note investing and then come over to read The Note Closers Show. Thank you whether you watch us on YouTube or read the blog, we are glad to have you.
That is the whole reason it’s out there is for content like this for you to be able to watch and do something. Besides that, the next step is often you take a webinar, jump on a weekend class, a one-day Note Weekend class or you take a 2-day or 3-day from somebody. I can’t tell you how many people call me up from somebody else’s classes. I’m like, “I don’t know where to begin,” which is funny. I’m proud of the fact that a lot of our students are taking action and go on and make an offer. How do I know this? I’m getting phone calls from people. I get phone calls from asset managers and traders like, “Do you know this person? Do you know this gal? Do you know this guy? They put you down as a referral. I vouch for you.”
I know it but I also know that people are struggling because I don’t know where to begin. People are like, “I’m just going to throw something against the wall.” You shouldn’t throw anything against the wall. One of the easiest things is to start looking at stuff. Even if you don’t have capital and you’re like, “I don’t have any private money to my name.” It’s still very easy to jump on a note listing platform and take a look at stuff. That is what it’s all about. People are struggling. If you are struggling like, “I’d like to make some offers. I don’t know where to begin or to look. I’m overwhelmed.” That’s okay.
You have to realize there are more note sellers now than there ever was before. There are more platforms. There are more ways for you to buy than it was several years ago. There are brokers. There are wholesalers out there moving notes. There are people getting and saying lists out. You run into the occasional joker brokers. I’m glad to say that there are not as many joker brokers out as there were several years ago. It seems that many people are sticking to the wholesale real estate side being a joker broker versus the note side. There are a lot more ways to find deals now than there ever were when I started in 2008. I got my list direct from banks. There weren’t platforms like Paperstac, Note Exchange, NotesDirect, the SEI Exchange back in the day or massive management-backed stuff. stuff.
I had to dial for dollars. Some of you are still embracing that and finding deals and getting tapes sent to you, which is great. I know not everybody can do that because a lot of people are working full-time. We all have to start somewhere. If you are working full-time you don’t have the time to call banks then you can jump on LinkedIn and go from there. What I wanted to do now with you guys and gals is trying to figure out what you are working with first and foremost. Whatever you have resources-wise will determine two things, what type of deals you’re bidding on and also the confidence level that you have. I wanted to make sure and ask you a couple of questions so I can tailor one way or another towards your answers.
Let me launch this two-question poll. It’s easy for you to answer. One, in the note business, will you be using your own funds to fund this deal? Yes, I have got the money honey or no, I need a sugar daddy or mama. Number two, if you are using your own funds, how much are you looking to invest? You’re at a $50,000, $100,000, $150, 000-plus or I’m looking to partner if you don’t have any funds. People say, “I have zero since I have zero resources.” You do have resources. You are here. Other people have resources. You are part of the Note Nation Facebook group. You are not alone. I need you to all think differently. You have resources. You can pick up the phone and talk to me. I don’t know any other note mentor is going to be the ones on the phone with you to help you and walk you through some things that is why hopefully you are here. I don’t know anybody else who is doing Monday night or webinars on a weekly basis for the last several years to help you out.
We are going to end the polling. I’m going to share the results with you. It was almost 50/50. Half of you got the money and then the other half, “I need a sugar daddy, sugar mama and somebody to help out with.” Out of those that you are using your own funds. I’ve got zero to $50,000. Some said $100,000-plus and then the other part of it is I’m looking to partner. We had more people who answer that they had money versus they don’t have money. It’s about 50/50. Either you have got the money or you don’t have the money, which is no surprise. It’s pretty normal across the board a little bit more on yes, I’ve got some money. Those of you that are using your own funds are in that a $100,000 under range, which is pretty normal. Many of you are looking to do some more on there, which is fine and we love that.
There is no surprise to what you said. I’m a little bit more surprised it is the 50/50 side but for the most part, not too big a difficulty in seeing what is going on here. You can see that after you are using your own funds, you have a lot of opportunities. You have some resources if you are using your own funds. You can go with a performing note side if you are looking for passive cashflow and normally performing notes, which you will see somewhere especially on some of the stuff that we are targeting. You can see 8% to 15%. Now, you can see fewer returns on performing. There are a lot of banks and institutions selling some other lower interest rate loans off, close to par or a few discounts. You can get anything from that 0 to 15%. It all comes down to what you’re looking for and are going to be happy with. What type of returns do you want your money to get, 2, 3, 4, 5, 6, up to basically mid-teens?
Occasionally, you can find some performing notes that will do better than that. I have four performing contracts for deeds that I would sell roughly at about a sixteen yield to anybody that is interested out there. If you are looking at nonperforming, you are glad to buy nonperforming, you can go a little skinnier on a nonperforming side since you are using your own funds. As long as you say, “I can get it reperforming and I can make a 12% or greater.” Don’t get me wrong. I know most people on the nonperforming side want to see a greater return than 12% but that is the bare minimum. I want to make sure you are getting 12%. If you are not getting 12%, you could be better off lending your money out on hard money loans. That is what we say with nonperforming, you should be looking to get at least 12% using your own funds.
For those of you out there, you all can pick the state of your choice. It doesn’t matter if you buy a deal in a longer foreclosure state if you are happy with it and you are willing to hang around for a little while. I still believe I’m not going to buy a note that I don’t want to end up with a property long-term. It’s one thing to keep from but you are not tying up anybody else’s funds if you are buying. I can give you a great example. I got an investor who bought a deal in New Jersey. Thought it would be a foreclosure and lo and behold, they modified the loan and reinstated it. It’s a 6% to 8% return to them now versus what they thought would be a foreclosure. They don’t mind. It’s a deal. It’s cashflowing. We have some equity rates. It’s better than nothing, better than a certificate of disappointment, which is fine.
Using Your Own Funds Vs. Other People’s Money
Let’s say you are using none of your own funds. You can buy anything you want, joint venture, do whatever you want basically with your own fund, which is great. If you’re using other people’s money, which is about half of you are, you have to be a little pickier about what you are looking at. The reason for that is if you are using other people’s money, you have to pay the Piper some funds. We have to pay them a return. If you are going to be doing performing notes, you are looking for performing. You’re going to have to be picky and define something.
If you are going to end up splitting or at least giving your investor a 6% return in a lot of cases, you need to be targeting at least a 12% return or greater if you’re going to split these. You only get 12% and you are giving 6% to them and 6% to you. If your investor is wanting 8%, you can still go 12% ROI but you are only going to see 4% going to you. That is an infinite rate of return to you if you have no money in the game. Still, you have got to be a little pickier depending on what your investor is wanting. On the nonperforming side, you can’t risk going below a 20% upfront ROI, preferably a 25% ROI. That is what you have got to look at, making sure that you have enough cushion there. That you are looking at a 25% percent yield if you either have to foreclose or the borrower gets back on performing, start paying that you will be good there.
“How would you factor in a preferred return and split it with an investor?” I would not do a split with the investor. If you are doing a performing note and your borrowing somebody’s money, with the performing loan, if they are going to fund you then you are giving them a 6% or 8% return and that’s it. I wouldn’t do a split with the investor because that is the best of both worlds. You can’t do that. It wouldn’t be good especially if they are not doing anything. If it’s going to be a performing loan, do a flat lending agreement where you are giving them a flat return on investment. That is the simplest thing because then you are selling a security at that point. If you forgive it a partial on the front end and then it was split in the back, that’s a security. You can’t do that. It’s just a flat percentage on the front end. Do 6% to 8% and you keep the back end for your work plus a little bit of front end.
I’m going to throw this out there. If your investors aren’t investing, this is the important thing about asking before you even promise anything. What have you done? What are you investing in? How was that done? Remember we talked about this throughout the investment profile sheet when we talked about funding. What have you done? If they have done diddly, don’t give them better than diddly. If they haven’t gone out and done anything themselves, don’t give them better than an 8% return. I would stick to the 6% or 7%. I wouldn’t give them anything back if they are not going to do it themselves. It’s your work. Don’t be doing that. Don’t be promising the farm.
If somebody is money-making zero, give them 6% if it’s bringing 12% or 13%. Make sure you deduct your servicing costs too. That can eat up your profits. If you are using other people’s money, you need to be seeing roughly about 25%, 30% upfront ROI when you calculate and are getting it reperforming or the deed in lieu REO. I do both. It’s a requirement for me, for the most part. You also would want to be in either usually short judicial and nonjudicial foreclosure states for the most part. You don’t want to do anything less than twelve months on an agreement. It’s better to do probably 18 months if not 24 months in your agreements. “When you are talking about these strategies, you are referring to annualized ROI. Are you talking about the I percentage of a mortgage capital?” No. I’m talking about annual percentage, annual ROI, not the I. When you are entering in terms of the percentage of a mortgage cap there, that is the interest rate on the loan. We are not talking 25% interest rate on a loan or 12%. Your ROI is that 12% to 25%. The terms of the loan can vary. Your I is always the Interest rate of the actual loan unless you are having to solve for your ROI with everything else.
If you use other people’s money, you got to be a little pickier. You got to make sure there is a bigger spread if you got to give splits. If you are using your own funds, you can pick whatever you want. You can go skinny if you need to, you are happy with the cashflow and the number. Most people when they are going through classes are scared to take action or burn bridges with the banks. They were like, “I don’t want to screw this up. I don’t want to get blacklisted.” What you do when you are scared is don’t take any action. You don’t move. You are like a bird or a little deer in the headlights, “I’m scared. I can’t move. I can’t make any offers,” which is not the right thing to do. The only way you get beyond your comfort zone of getting outside of your scared zone is by taking action, pressing on through that false evidence appearing real.
Getting outside of your comfort zone and doing things. Everyone deals with, “I’m scared. I don’t want to screw shit up at first.” Everybody does that with everything. You’re normal. Everybody has done that. No matter whether it notes, fix and flips, wholesaling, going to a new job, whatever it might be, “I’m getting married. I don’t want to screw this up,” or, “I’m dancing or going in for a kiss. I hope I don’t get slapped.” Everyone deals with it. We are going to laugh about this because it’s okay. You aren’t wrong for feeling that way. Not everybody is as big a Riverboat Gambler as others are. I’m a bit more of a Riverboat Gambler than other people. I have been scared. I did not want to screw stuff up. I have learned over time that I can’t screw shit up. No matter what it is, everyone deals with screwing up or that negative connotation of, “What am I going to do?” That’s the thing I want you to realize. You’re here. You have a lifeline. You can pick up the phone, drop an email, shoot a text message, “Scott, what I do now?” If you need more help with that, figuring out what the hell to do. I highly encourage you to sign up for our workshop. It’s Friday, Saturday, Sunday, NoteBuyingForDummies.com. A lot of nuts and bolts training there for you.
Familiarizing Yourself With Note Deals
The first thing that I have always done and recommended people to do is to start familiarizing yourself with note deals, looking through things and get a feel for is where you don’t have to worry about getting blacklisted to buy it back. Those are the loan platforms that are available out there. The ones that are still out there that you can review deals. Let’s do this. You can review assets on there. You can start working due diligence and start doing some pseudo marketing as you are working through some stuff if you find something that makes sense.
There is enough information on the platforms for you to realistically make an offer, see if this deal makes sense or it doesn’t make sense. If it makes sense and you submit an offer, you can start marketing that to raise capital, close it and go from there. Are we thinking that you are going to win? You are going to come across the most perfect deal. You are going to hit it out of the park and you want to be perfect the first time. Perfection equals broke. You are not going to find the perfect deal.
There are going to be some deals with it’s not the prettiest property. If somebody lives in it or the details aren’t quite there as to be a home run but it’s a base hit, base hits win deals. If you strike out 7, 9, 10 times in the Major League, you go to the Hall of Fame. You might not be making the Hall of Fame money with this stuff, you have to start figuring things out, gaining knowledge in the actual due diligence workout. Too many of you are scratching that proverbial itch by showing up to a webinar or a class but not taking action. I want you to be in that 10% of people taking action, not the 90% of something that doesn’t do anything.
What we are going to cover is not an idea, it’s actual action for you to see what I would do and how I work through things. There are a couple of platforms I jumped on and looked at briefly. I was familiar with stuff for you but stuff that you could go on and take a look at for free, no-cost, review assets at no cost, no obligation to start the process. Many of you aren’t doing this. You can do this 24/7. Anytime during the day, night or weekends. You don’t have to get a list. You don’t have to call a banker. You could go on there and start looking at things.
We are going to jump on two-note websites. We are going to take it from the spot of if I’m using my own funds or somebody else’s funds. We are going to talk about first-lien performing and nonperforming notes. We can try to find a deal on both, which I know we will be able to find the deal because I looked earlier on these. This is some low-hanging fruit. Everybody has access to this. There are some bids on these websites. The pricing is stupid. They are smoking some crack. They need to pass the crack pipe in the pricing. There are other websites I’m not going to even go into because I think they are smoking crack. I dislike websites or trading platforms where the sellers can’t come up with a bid. I hate it when I see my students submit bids and they don’t even get a damn counter back.
If you are not going to give any type of pricing expectations on the front-end side, don’t post it on there. Don’t waste anybody’s time. Don’t get upset if you don’t put pricing expectations and you get a low-ball bid. If you get a low-ball bid then counter back. There are other websites that I think are trash. There are two out here we are going to talk about. WaterMarkExchange.com is a website that has been around for a little while. It doesn’t have that much on there. Val Sotir is a buddy of mine. The reason I want to bring Watermark up is it only has 30, 35, 36 nonperforming stuff on there. It does have some performance stuff on there. There is some stuff on there you can make some bids on. We are talking about Paperstac, which has 130, 126, first lien, second lien. We are going to jump on this too, look through them fast, identify an opportunity for you and do some quick due diligence. We are not going to do more than one on each website. We will look at one performing and then one nonperforming. We will do two on each website as we flip through things. Keep that in mind. We are going to run through this.
These are the things that you should be doing. I would have given my right arm when I first started off to have a website and go take a look at notes to understand everything. I was forced to get a tape in, do the due diligence fast, being scared crapless with Wells Fargo financial back in the day, from Steve Smith who was the asset manager over there. He sent me a list of notes and it was this low balanced stuff, low hanging fruit, ugly properties that I was like, “$1,000, $5,000,” some low-ball bids, which was a nice thing compared to what we have seen now but still some opportunity for you.
We will review the listings on there to try to help you find some stuff whether it be some opportunities. You could bid on some of these things. You are still responsible for your due diligence and working for it. I’m not by any chance or means endorsing either one of these websites. I jumped on because it’s pretty easy for you to take a look at. Why did I jump on Watermark Exchange even though Val has not posted a lot? It’s because there is stuff on there. They are still moving some stuff. I can reach out to Val and get an answer relatively quickly on a deal.
That is part of the reason that you can often find good deals in places that have been over picked. If everybody is looking at them, nobody is looking at the websites anymore and it’s still being up there, you can pick up some stuff that are probably pretty good still. We will talk about working initial due diligence, some of the marketing to help me get this out and get rocking and rolling. We will go from there. If you have not taken our three-day Virtual Note Buying Workshop, you can do so. It’s $599 for you plus a spouse or partner. There are a bunch of bonuses and recordings. Some cool stuff we are throwing in there. One of the things that we are doing is a bit of a deeper dive with these platforms and a couple more platforms.
Let’s look at Watermark Exchange. It’s free to log in. If you have got your own capital, let’s look at the performing side. We will say performing. We’re looking for first liens. I’m not going to spend my time on seconds. We’re going to leave the sale type. All we want to look at available and we are going to hit submit. Let’s look at some of the stuff. A great place to be investing in is in Texas. There’s one in Pleasanton, Texas, not a bad-looking little house and they say make an offer. The market value is $98. The first-lien, original balance is $69. The principal balance is $60. A little bit 61%, that’s not bad on that. If you got a performing note, if you have got your own capital, what rates are you looking for your own funds? Don’t put as high as possible but let’s talk about what minimum? If you’re being passive on performing notes, what are you looking for?
You would find more deals with that 6% to 8%. You also will find 8% to 15%. You want to find the highest. We are not talking about the highest. The 8% to 15% is very reasonable. This one has an 8% note rate right there. That should tell you something. If you were to buy it at par, it would be 8%. Let’s say you made an offer. It says it’s worth about $102,000. Market value is $98,000, which is not too bad. It’s roughly about 60%, 61%. Let’s say you asked for a little bit of discount. Let’s say we did it for $50,000. If we took $50,000, let’s say 664 times 12 is equal to 7,968 divided by $50,000. It’s a 15.9% cash on cash return. It’s 216 Bensdale Road. Next payment due, July 19. What I’m saying is if it’s been paying and still paying, the payment looks good. Why wouldn’t you? It’s 16%performing at $50,000. I might buy that. It is now as nice that it’s a higher interest rate at 8%.
One of the things I like to do as I’m doing due diligence on a property or if I’m doing some numbers, I will Google Map it fast. This is from November of 2018. It looks like it’s occupied, they are paying. At $42,000 it’s going to be roughly $60,000. I’m taking P&I multiply that times 12% interest only. It probably a little bit less to get 16% but that’s a pretty decent return. I hadn’t researched this one yet either. Let me go back here and we will get some more.
Even if you were looking to raise capital, if you bought it at $42,000, it was going to be a 16% return and somebody was looking for 6% to 8% of their money. They had $40,000, $42,000, you could bring somebody in for that and then split on the cashflow provided everything checks out with it. Pleasanton is not the biggest of cities. You have somebody paying. It’s in a pretty nice neighborhood compared to this. Use your marketing piece or your posting on there, performing notes in Texas. If they don’t pay and you are in at $50,000, you got $100,000 value minus your $50,000 investment, that’s $50,000 roughly equity. If they don’t pay, you cash in by foreclosing. Texas is one of the fastest foreclosure states in the country. That is not a bad deal, Pleasanton, Texas on Watermark Exchange. I’m making a note on that one. If you aren’t going to offer on that, I’ll reach out to it. That’s not a bad deal. That’s supposed to be a performing note too.
That would be worth checking out and asking some questions on. That was less than five minutes. I hadn’t even looked at that one. I looked at one in West Palm Beach that was a non-performing one. “How do you feel about purchasing notes given the fact there is a foreclosure moratorium?” I don’t care. If I’m not getting something at a cheap discount and if it’s a performing note, come on. The foreclosure moratorium is about to end. It’s probably going to end this month, if not, through June, it’s not that big a deal. That is what it comes down to due diligence. If they haven’t paid in 2020 then it’s not performing. If you are doing your due diligence and they are still paying then I don’t care.
Here’s one, it’s 6.75% interest rate, 391, the principal balance is $54,000. They have paid it down quite a bit. This one would be closer to your 8% or 9%. Let’s say it’s $54,000. Let’s say you offered 80% of that. You offered $43,800. It’s about 10.7% if you do a quick 12 P&I divided by your $43,000. It’s about 10.7%. That’s not bad. It’s the same thing if you’re in at $43,000, you are roughly below 50% of market value. That’s would be a pretty decent one to look at too but you are not going to probably get it at $29,000. You got to realize there is all this equity. That’s why I said maybe at $0.80 on the dollar of $54,000. They are not going to give it to you even lower than that. This is already performing. You have to have a little bit of common sense here in looking at your bids and saying, “$29,000, it’s a performing note. It’s been paying.” If they are still paid through January 2021, $0.80, you can ask but you are probably not getting a response. If it makes sense even at $80,000 for what you need at 10% and 11%, that is a good return on investment.
Some of you out here are trying to be too greedy and too careful, I know. You got to pull the trigger and get a deal done. You are trying to be too scared or too limited in what you are doing. Maybe you need to buy a crappy asset to figure out things. That is not a bad return. Anytime you can get more than 12% and you are doing on a performing note or right around there, you are going to be sitting pretty. It has been there a long time. I recognize it when I jumped here but it’s still sitting there. It’s still performing. It’s probably because you have too many yahoos trying to make lowball offers on it. Anyway, that’s the performing stuff. Maybe it was a nonperforming before. It’s a possibility it was nonperforming and it’s back onto performing.
I don’t like New York. I’m not going to look anything in New York. Republic, Pennsylvania, I don’t know where that is. Might not be too bad. They want $0.75 of the value. Here’s one I looked at I thought might be worth spending some time on. They have a horrible screen view. This thing looks like it’s a shanty, 4395 Melaleuca Trail. This is in West Palm Beach, Florida. If it’s performing now with a ton of equity, you probably need to be at $0.80. The nonperforming is going to vary on how much equity, how far it defaulted. What I do with nonperforming, I’m going to look at maybe $0.50 on the dollar.
Someone says, “Would you recommend wholesaling NPNs for active income and raising capital?” No. You could do that but if you are going to wholesale notes, the people that are you are wholesaling to can probably fund your deal. If you are going to market the wholesale, you might as well market to raise private capital. You can wholesale but you have to go through work, understand what you’re selling, otherwise you are just throwing spaghetti or crap against the wall trying to get stuff too sick. I’m trying to get you to make offers or look at some stuff that you probably get your feet on.
This one was originated in 2018. It was a 30-year loan and they went in default in November 2019. They are basically about a year and a half behind. The thing about this one, original balance $133,0000, they paid down principal balance $131,000, estimated market value $170,000. That’s on a good day. I would say close to $150,000. You take 12 months or 2 years of payments and add it to that. That’s another $20,000. There is not a lot of equity on this one. I would go off the stair-step method. I would start at $0.50 and up. It’s been on here for a while so I may be wanting to get rid of it. Start at $0.50, that would be roughly $65,000, $66,000. That is going to give you a good return if you foreclose. Even it takes a year to foreclose, the values will still keep going up in West Palm Beach. It’s $115,000 minus $5,000 to foreclose, 10% in closing costs, you are still making some money on this thing. This would be a good note if you had to foreclose.
Let’s say Mr. Locksmith gets back on track, 815 a month times 12, that’s $9,780 divide that by $65,000. If they did start reperforming, it would be close to about a 15% return on investment if they started paying on time again and then after twelve months, sell it off as a performing note at 80% of the UPB. That one is not a bad one. If this stuff has been up there, they are motivated to move it. That is why I’m trying to say I can take this asset in the market, do a screenshot, post that in a Canva, talk about West Palm Beach and say, “I got a nonperforming here worth $150,000 that I’m picking up for $65,000.” Don’t put the address and say, “Who wants to put their money to work?” We might have an answer here before too long. Someone said, “More than $100,000. We have got an opportunity. One of our students on a Miami condo for $110,000. She’s looking for funding on that deal probably for about twelve months but she’s willing to pay 12%.
That’s something to think about that for you out there. If you’re looking, make sure to email me at Scott@WeCloseNotes.com and I will be glad to put you in touch with her to potentially fund a deal for you. That should be about a year, if not less. Once the foreclosure moratorium stopped, you can finish the foreclosure on that. If you’re interested, drop me an email. “How do you structure a partner deal?” It’s just a lending deal, you were getting a flat 12% return on the money with quarterly payments. That is how it would be. You are not getting any of the equity. It’s worth $210,000, $220,000. We’re looking for somebody with 12% interest on that deal for $110,000 for a year. You are getting 12% of your money. It’s at roughly about $0.50 on an LTV too so you are sitting pretty good.
If you have got your own funds, not if you don’t have any funds, if you are trying to raise capital that would not be a deal. I highly encourage you to sign up for the three-day workshop if you are brand new. What I do is I take my quick run to the bill, twelve months of payments on the P&I payment times, Principal Interest payment times 12, divide that by what roughly my offer would be. That has been sitting around for a while, $0.50. If they counter back, I’m going to go low at $0.50 of the UPB or the value.
I don’t need to run every specific bit of due diligence on this thing on the front-end side, I need to make sure I’m in my ballpark range. I get all this due diligence, I wasted all this time doing due diligence and they say no or counter back at the number that doesn’t make any sense, I’m just wasting all this time. If you go to WeCloseNotes.tv, that will take you to my YouTube channel or you can go to YouTube.com/WeCloseNotes and subscribe, you will be alerted there. Plus, if you’re on here, I’ll make sure that you are part of the email and we send out the replay.
“How much due diligence time?” If it’s been sitting around for a while, I’d asked for at least 2 to 3 weeks for due diligence and say, “I can fund by the middle of next month.” That is all you need. You are not going to take that long. It takes a couple of days to pull a BPO, a couple of days for O&E. If you get three weeks, once you get an accepted contract, the loan sale agreement then you would pay for a BPO and an O&E and start marketing. If you mark it that, “You are picking up a deal at $0.50 and you are willing to give somebody an above-average return.” If they’re making zero, you give them 6% or 8% and they’re making zero. Why not? It’s a good deal.
“If there are judgment liens or things attached to the house, even though I have the first lien, how does that play when I want to sell the house?” You are not selling the house. You are buying the note. You are buying the debt. When you foreclose, that would wipe away the liens. The taxes have got to be paid but any weed liens or personal judgments are going to follow the person. Foreclosure is going to wipe it all out and you will be fine selling the foreclosure either at the auction or if you had to take it back at the foreclosure auction, it cleans it up for you. I’m talking about nonperforming, 50% of UPB or fair market value, whatever is less for nonperforming notes to start off with. If it’s been sitting around for a while, that’s when I would give it a try. What’s the worst $0.50 if they come back and counter, now I have the real number and then I can evaluate if the number makes sense or doesn’t.
You don’t want to own rentals. If you are in the note business, stick in the note business. Do you live in West Palm Beach, Florida? If you live in West Palm Beach, Florida, that’s a different thing. The note business is not in property management. Trust me. It makes more sense for you to sell that note If you bought it at $75,000 and make $75,000 versus holding onto it for a rental and dealing with that crap. Pay off your investor, make the $75,000, double down and buy 2, 4. If they get re-performing, great, keep it as a reperforming note but don’t keep it as a rental. It does not make sense to do that. You don’t want to be in the rental spot and have rentals all across the country. Trust me. You don’t want to do that. You’re in the note business. The banks are in the note business. They are not in the rental business. They’re not in the fix and flip business unless they have to be. They don’t want to be. You are in the note business, cashflow or foreclose, deed in lieu. If there are no liens on it, take the property back then sell it as an REO, pull that cash and go on and double down. Don’t make it difficult. Don’t try to mix 3 or 4 different strategies. You will end up losing money and being in the worst-off situation.
Let’s go over to Paperstac, which I have not spent any time on. I looked at some stuff to see what was available. See what’s on there for sale. The same thing, you can look on here with single assets, first liens and for those that we are looking for some performing. Someone asks a question. “Is there a minimum time to hold the note performing or nonperforming before selling?” No, you don’t have to hold it at any time. If you buy a nonperforming note, get it restarted where the borrower starts paying again. You are going to probably have to hold it for at least 6 to 12 months and receive on-time payments for it to be considered a new performing note.
You got to learn to read this stuff. When you say 10% like this, $28,600 UPB at 9.9%. That note is right at 9.9%. The yield on here is what they are saying is roughly about a yield based on the 25.8 firm price off at 28. Roughly it’s about 11.8% yield. This one up here, 12% yield, 10.3% yield. This is how it says at the details of the note at the top. Here is one at 13.72%. It’s at a 10% interest rate. It’s a CFD, Contract For Deed. If they do fall behind a week or two, you still got some equity probably on this one in Ashtabula. I got to register for it to pull up the address but that’s okay. That could be a possibility there. I’ve got some stuff from Ashtabula. Let’s look at the nonperforming side.
This one in Lima, Ohio, it’s not too bad. They have already cleaned this out. This is technically an REO. It’s worth $63,000. They have already cleaned it out. This was a little jewel, I thought. I’m surprised nobody picked it up. It’s an investment to value at 35% because if they’ve already done the work, look at notes here. “Great opportunity to take a foreclosure home in cash. The house has been cleaned up, locks changed, realtors priced the single-family home at approximately 45.” You’re picking up at $0.50. It’s not $63,000, they validated $45,000. They got their numbers wrong. It was just on there. Lima is not a bad little area. I like that little one. If you want an REO, there you go, that is not a bad $22,000 for those of you that had less than $50,000, that could be a great way. Somebody talked about wholesale, maybe you can take that down and then flip it and get under contract for $22,000, wholesale to somebody locally for $30,000, put $8,000 in your pocket, it still leaves them 33% of a value for a good rental.
On Mullica Trail, West Palm Beach, Florida, they want $100,000 on that one. Still, that’s not bad, they’re still $50,000 in profits. They are still at $0.67 on a non-performer. That’s still worth it with value going up in West Palm Beach. That would be worth taking a look at. You are always going to put eyes and ears on a property having a realtor, pull a BPO, do an external BPO drive-by to look at the properties before you buy the note. Every time you do that. You don’t trust the photos online here. You got to spend some time, pull some numbers, take a look at some things. I don’t buy a second lien. I’m just doing first liens. I don’t waste my time with seconds or whatever price.
That’s what I would be doing. That is exactly what I would do if I were you that were brand new. Go on there, make some offers. Ask questions. Find out what is going on. It’s okay to ask questions. It’s okay to dive into it but many of you aren’t doing anything. That is not the way to do it. If you are looking for deals, jump on there. Take a look at a couple of them. Make some offers. Ask some questions. Do some due diligence. Pick up the phone and ask me, “I ran into this. What should I do next?” and go from there.
As always, it has been a pleasure. If you have not signed up for this workshop, do so at NoteBuyingForDummies.com. Take advantage of it. “If you suggest seeing the property, how can I see it in different states before buying the note?” It’s called hiring a realtor to go out and take a look. Same thing you would use Google, Realtor.com. There are all sorts of vendors under there. You need to sign up for the three-day workshop. Hopefully, this is helpful for you. Schedule a call with me at TalkWithScottCarson.com. If you are interested in finding more, let me know at Scott@WeCloseNotes.com. We’ll talk to you later. Thank you so much.
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