- May 31, 2019
- Posted by: august19
- Category: Podcast
It’s very easy to look at a big tape and see big ROI numbers and think, “This one is great. We should do this.” However, when you look at a big tape or any tape for that matter, you should always evaluate from the standpoint of things like how beneficial is it to buy a particular asset? How many payments are there? What makes it a great deal for a JV? Chris and Gail get into buying and reselling tapes at a profit. As Gail goes into a new CFD tape with over 650 assets on it and how to approach a big tape like it, Chris tackles how you should structure your JV agreements and touches on the process of doing his very first rehab in over 100 notes that he’s done and gives some recommendations for people who are doing some work on properties.
Listen to the podcast here:
Buying And Reselling Tapes At A Profit
I know Gail would want to talk about her analysis on the tape from Direct Source. I came out with about 650 assets on it. I’m sure most of you have seen that, but there were some quirky items in there in regards to some payoffs and payment streams, as well as a number of periods left on loan. That’s something she wanted to talk about. In the meantime, I’ll start off with some of the things that just happened. With my note business, I’m in the process of doing my first rehab. I’ve had now over 100-plus notes and up until this time I have never had to do any type of rehab on a property. I’m thankful I haven’t had to. In this instance, basically it was pretty much a property that definitely needed a new roof and it would make a great rental. It’s in an area where a lot of investment opportunities but investors were coming in and low balling this property. I’m actually putting a new roof on the property, got to get them outside taking care of on the property and then the inside. Wrote some scopes, put the bids out on everything and things are looking so far good.
One of the things I recommend for people if you are going to do any work on a property is have somebody local who may not be affiliated with anybody to try and take a look at the property. On this one, what I’ve actually done is I had a guy do the trash out and he’s also mowing the lawn for me. I’m paying him almost as a property manager to stop by for half-hour every day. I reached an agreement to pay him short money to do inspections for me. Go out, take a bunch of pictures of things and just let me know how the work is progressing and it’s gone pretty well. A few other things that I’ve found to be very beneficial, I’m literally in the throes of this that I started on the roof and stuff. I’m going to share my stories as they come through, as well has been the only one with the county, which has been a little painful as well. We’re trying to make sure the property gets cleaned up and in order and stuff.
What I also found beneficial has been using Facebook groups, the local REIAs and also agents in the area in going on these and searching to see who people recommend. One thing I’ll be careful or tell people to be careful of is sometimes you’ll see someone recommend a certain company and then you look up that company and that’s the person that owns the company. Always be careful of that. I mention to people as well if someone recommends somebody, send them a message and say, “I noticed that you recommend this person. Can you tell me a little bit about their story, how they did and how is their payment? Did you have any warranty issues?” Those were a few things that I’m focused on this property. It is a small two-bedroom, one-bath, about 800 square foot property. Total rehab probably is about $15,000 in it, and then I have to clean out and stuff. It would probably be in it for a little bit more. We had Chad Urbshott and a few other in-depth analysis on about what’s that magic number, how much should a property increase based on that rehab and consensus was pretty much a 100% return on a rehab. If you’re putting in $10,000, you hope the property would gain $20,000 in equity.
I’m actually in my favorite state of Indiana, which for those of you who are on the Notes and Bolts Good Deeds Note Investing Facebook group, I’ve asked some questions to people about what is their favorite state and what states don’t they like. I’ve mentioned Indiana as one of my favorite states and as part of that, I’m in the process of going through now. Gail, I’m glad you could join us. I was telling my story about my Indiana properties and how right now I’ve got a mix of between, loan mods, trial payment plans and other things. I have nine in Indiana going on, a little busy. I was also talking about one of the rehabs that I have in Indiana and someone said who am I using and where’s it at? Fort Wayne is where it’s located. Who am I using? I haven’t decided yet. I’ve got a roofer and I’ve got bids coming out for people coming through. I haven’t finalized who are going to be doing the interior yet.
You left some cliffhangers to do about your Indiana properties?
I was sharing with people that I literally start. It’s the first rehab in over 100 notes that I’ve done.Slow and steady wins the race, particularly if you have an IRA and you're relatively young. Click To Tweet
I didn’t realize that. How did you get away with not doing any? Did you bail? It’s like leaving a relationship instead of working things out. That’s Chris, love them and leave them.
I was sharing with people I literally just started this. The roofer started and so I’ll continue to share my story with people and want to know the good, the bad, the ugly. I haven’t got those yet. I’m waiting for it. I don’t minimize it by having some people. I have the cleanout, the guy who did my clean out on the property is acting as a project manager, drive by the property for me, checking in and mowing the lawns.
Sometimes you get lucky and you find someone and then that person becomes the basis of doing a lot more investing in that area because it gets to be so much easier when you’ve got those great people.
If you have a JV partner on this deal or other deals, reach out to them and say, “Do you know anybody in this area?” The partner on this actual deal knows somebody in the area. We were going back and forth whether or not to do and stuff. He also commented and I said, “Do you know anybody in the area?” “Actually I do. Let me reach out to him.” It’s not a bad thing to check either.
You’re in charge, but it was the JV who solved it. Who’s the big man now?
He is my active investor.
Those of you who saw my post in Notes and Bolts know that the topic was inspired by an issue I had with the gigantic CFD list that came out. I very nearly put in some bids that would have made no sense at all and for the reason that I think a lot of people don’t think about because I never used to. To start, when we look at a big tape or any tape, you’re always evaluating from the standpoint of how beneficial is it to buy a particular asset. There’s ROI, which is an easy value to understand. We think about it in simple terms, if you’re getting a 25% ROI, it’s going to take you four years to get your money back. If it’s a 33% ROI, it’s going to take you three years to get your money back. If you’re splitting your cashflow with a JV, if you’re splitting it 50/50 and the idea is to hold onto it long-term, a 25% ROI is going to mean it will take eight years for the JV out of a 50% split to get his money back and six years at a 33% ROI. This is like kindergarten to Chris. It’s easy to look at a big tape and see big ROI numbers and think, “This one is great. We should do this.”
The other thing that is equally important is how many payments are there? If you are in a situation with four to eight years just to get your money back before the JV investor makes anything, any extra profit, you’re making profit all the way along. If you have no money in the deal, that’s all funded by them. We have to look at what makes it a great deal for a JV. For a JV, if you start with a non-performing note and you have that potential to sell it for a lot more than you paid for it, maybe we don’t have to be as concerned about the rate at which and the number of years it would take with cashflow alone to get your money back. You have that possibility of a big bump at the end. I hear a lot from people who are buying performing notes and we buy them ourselves. We buy them and sell partials, so it becomes important to pay attention to how many payments are actually left on a note. Are there enough that the JV is going to get all his/her money back and make something on it? A short note not only might there be enough payments left, but you’re also not going to be able to buy it and resell it because there isn’t going to be enough left in it to sell it at a profit.
That brings up too a point of which we’ll have another session on is structuring your JV agreement because there are three ways to structure it. I think the most common method is a payment of $400 comes in and gets split $200 each. Eventually, if it continues to a certain point in time and it gets sold and technically you have to give taking back out of your pocket and some point. The other way I’ve seen people or heard of people is I’m only splitting interest payment and giving the principal back to that partner. Third way do it is we’ll set up a payment scheme of what a certain percentage of the money coming in goes to that partner instead of 50/50. It’s the first one but it could be twenty, could be there are many different metrics on the construction of these things. That’s a very key point. It’s important on your bidding.
You have said to me yourself, you see people bidding at prices where they are only looking at the relationship between the UPB and the P&I payment. They’re not looking at the fact that there aren’t enough payments left to make what they feel they’re going to make on it. This new CFD tape that came out was very instructive because it makes me realize that after a certain amount of time of looking at these things, you start to notice where there are mistakes on it. It won’t be obvious when you’re new. This is the tape I was just referring to. This is a massive tape. There are over 650 assets on here. The way that these arrive, they’re always sorted by state and usually nothing else.
Can people say how conversant you are, how comfortable you feel in general with Excel, with even basic functions? Do you all know how to filter? Do you all know how to sort? To be clear, I get rid of states that I am not interested in. This is the sorting function. Kentucky is already unchecked. Illinois is already unchecked. I think we can all agree that Ohio deserves to be unchecked on this thing. You won’t see those states on my version of the spreadsheet. The spreadsheets usually are not filtered. They’re not sorted by city, state and the city, so I generally do that as well. You end up with a big giant, in this case is a big giant tape, and it’s quite overwhelming. We did do one episode about our approach to a big tape like this, but I wanted to show you what happens. Everyone who knows me knows I’m completely insane about New Orleans.
I’m a little disappointed that you’re not using the spreadsheet that I created that takes the toxic asset lists and dumps it in here.
This is like dating somebody, you go on three dates with them and you can’t admit that you can’t remember their name. You just have to keep pretending or you call them hon, sweetheart or something. I actually never got your spreadsheet for checking the toxic assets.
For people reading the first time, we have a toxic asset list that if you’ve signed up for on the Facebook group, you can see which assets are already ones that have title issues or properties burnt down. As a spreadsheet, we cut and paste that information into it and it will highlight every asset that’s on that list.
When you use that on this list, a lot of them come up.
I’ve got a new version coming out in near future that if people keep records of their bids and the counters from my seller, it will also show those in a different color so you can see what you do bid on, and they’ve come back to life.People sit around waiting for the homeruns when they could be getting lots of base hits and compounding along the way. Click To Tweet
To get on with this, this one immediately caught my eye because it’s New Orleans. Give me more New Orleans. I’m looking at this, it’s got a really low UPB. I think I could probably get at a steal. Though it is current, so maybe I have to expect to pay up to 70% or even more, 75% of this number. It’s low but doable P&I payment number. I come over here and this is how many payments are left, 108. Does anyone see a problem there? 108 payments of $227 is over $22,000.
This is obviously not the correct number. That got me to thinking this UPB is too small to joint venture on anyway. I was going to buy it in my IRA even though there’s zero chance that someone with such a low UPB would ever give up a house like that. It’s made me go and calculate how many payments are actually left. It also made me wonder how many others of these are wrong. One of the things that I do on a spreadsheet like this is that I will look at the total amount that something is going to pay. In this case, I am interested in seeing what is the total revenue going to be on this loan? I want to multiply the number of payments times the P&I payment. I hope everyone’s pretty conversant with doing their own formulas on Excel. This is how much all together we can expect to collect with this number of payments remaining of this amount.
Yes, if the number of payments remaining is correct.
Chris was right. It’s over $24,000 on a $5,000 UPB. That is not true.
What’s interesting is if you look up the one in Monroe, Louisiana, that one’s UPB is $22,600. It’s $50 a month more and it’s only 30 months difference.
There are a lot of ways that you would be tipped off here that something is not right. I was doing this in a laborious way. I was figuring out how many payments are actually left. This one looks right. This says $4,000, a much bigger P&I payment and there are nineteen, so we’re probably much closer to that than we are to this unfortunately. Chris being the numbers guy taught me how to figure out exactly what’s left. This is truly a genius. There is a function right here in Excel called NPER, which will show you exactly based on the interest rate, the P&I payment and the UPB exactly how many months are left. It’s just a couple of steps. The first thing that you have to do is you have to take the P&I payments and turn them into a negative number. This is that column, the P&I payment times negative one. Did you have a different way of doing it?
Yeah. Put the NPER formula in this one and start putting L2 put negative L2.
We forget the first extra step, which turns out to be superfluous. I’m going straight to NPER. We’re doing NPER and what we’re going to do is multiply. The first thing we’re going to put in is the interest rate. We’re going to do N2 divided by twelve, because we’re getting the monthly interest instead of the annual interest. We’re going to put in the P&I payment and I’m going to put it in a negative number L2. We are going to put in the UPB.
In Excel, they say the present value, which is the UPB.
I want to close it. I’m just going to give everybody who is struggling a chance to look at that. We hit Enter. Let’s see how many they’re correct about. This is what they said and this is what we have discovered. It’s what actually remains. They said sixteen and there are 138.
UPB is 31 at 384. In row eight, it says how much too. It says 6,144. What is that?
How much total you are going to get. That’s based on a number we multiplied the P&I payment. They were showing. They’re really close on that one.
The ones that look like a month or two are typically probably correct because of the fact that they may have received the payment and it could be in reserve.
To be fair, a lot of these are pretty close. Here’s one that’s off by 30 payments. That’s significant. That will skew your numbers for sure.
What can also throw these off sometimes is sometimes they may calculate it is working backward from the last payment date when the loan is complete. If there’s a modification or something like that, they never update it for that reasoning and it’s frozen numbers off as well.A note is a security, just like a stock. Click To Tweet
If you’re just happily computing, multiplying P&I payment by the number of payments that they say, you’re going to get some pretty wrong numbers, which could mess you up with a JV arrangement. Sometimes it’s a good surprise like this one. We have two more coming. I’m going to put in another word for getting the servicing notes because I actually have one under the contract that they said there are thirteen payments left of $383. The grand total with their number of payments was going to be $4,900 and I have it under contract for less than $3,000 and it’s thirteen payments left. I could make $1,900, $2,000 on a $2,800 investment in a year. That would be fine. There was mention in the servicing notes of a settlement agreement, and the settlement agreement does not show up in the collateral file. Going back through all the notes, the settlement agreement was struck in July of 2018 and seven months before that they had agreed that they would settle for 24 additional payments of $400. By July of 2018, they had made seven of these 24 payments, meaning there are seventeen payments left but they’ve made nine of them. There are eight payments left.
On the other side, there are some surprises sometimes where if there’s a deferred payment. I have one that I acquired where UPB was $42,000 with those modification. Those $40,000 and arrearages on it that the mod basically deferred them until the due date. There’s equity in the property, but that’s also nice where somebody who’s got ten years left on loan, if you hold it for that long, there’s an extra $20,000 sitting there at the end.
This one also has a negative escrow balance of over $7,000. That might be that the loan would keep going until that was paid, but it’s impossible to tell without actually having a copy of the settlement agreement whether they’ve waived any escrow shortages also. This is a situation, I don’t know that it’s not worth buying this. I don’t think we wouldn’t bother with it because at this level with such a small UPB, it’s almost not worth spending the money on the O&E on the BPO and everything. I’m certainly not going to spend anything until I get an answer from them about what’s going on and I get a copy of the settlement agreement. Knowing a situation like this, they’ve got over 600 assets that are being bid on. The likelihood that they’re going to drop everything and go dig up that settlement agreement I figure is quite small.
We have a question. At the top of the screen, there’s a #NUM, the error code. Here’s what I want to say to some people sometimes why you should check this as well. You may see alone that says it’s a $30,000 UPB and it’s $200 a month payment at 10%. There’s no way, because the interest is more than $200 a month. That person is either on some wacky payment plan or the interest rate is wrong. If you think about it, $300 a month payment, I’ll say a $30,000 loan at 10% interest is about $394 a month. Somebody said it’s a $30,000 UPB at 10%. The payment is $200 a month, you’re going to get a #NUM sign because it can’t calculate because there’s an error that either the interest rate is wrong, the UPB is wrong or the monthly payment is wrong. The interest would keep accumulating, so something’s wacky with that loan. I’ve seen that in the past where they’ll put in the information for the original land contract, but then there was a modification that may have changed the interest rate or changed the payment down and that information shows a new monthly payment. It really doesn’t show the rest of this. People got to be cognizant of that to look at it to make sure they’re also looking at those P&I payments and everything to know what they’re bidding off of.
If there is a takeaway from this episode, you have to pay attention to this. It’s because it’s on a tape, it doesn’t mean it’s true. Like we’re saying at the beginning when you have more experience looking at these and playing with the numbers, these things jump out at you in a way the early doors in this career.
Gail, you have one too where there was a $15,000 UPB that’s supposed to be 300 payments left or something like that.
That was on an actual note. That one is full of mysteries because the loan was only ten years old. The original UPB was $47,700 and the UPB was down to $12,000. There was no loan modification. There was nothing to explain where $30,000 had gone, what should have still been on the UPB. That happened with the previous service or maybe two servicers ago, so the people that I was buying it from just said to me, “When we bought it several months ago, the UPB was $14,000, now it’s $12,000.” I was like, “Where did the money go?” It doesn’t make sense.
We have a question, “When you see these discrepancies, do you reach out to John for clarification or just ignore them and move on?”
It depends how delicious you find the loan. If you like it and you want it, you can try reaching out. John, like I’m saying about the seller, when you put out a tape this size and the last time he put out a big tape, he had 150 bids in the first week. Is he going to drop everything and put on his detective hat and go look? He’s not. Will he send an email to someone over at Window Rock? Yes, he will. Will they answer? Who knows? It’s worth a try. You can always try.
What I do is I’ve bid off the information I have with some explanation too. Also, something that is just really quirky. I may bid off of what I have and then when the collateral comes along with the servicing notes, that may explain more, we’ve got more than meets the eye. That’s when I typically go back with the questions and say, “The tapes said this, here’s what’s being shown in the servicing notes. Here’s what’s going on.”
I think that’s a good point actually because people are much more likely, if you’re an active bidder and you’re showing that you are willing to do this deal, if you can find out what you need to know. It’s probably way more likely than if you’re somebody who’s thinking about making a bid and peppering them with lots of questions.
A few more questions, “Like it meaning you like to property and location because the data’s meaningless?” Correct. You want to see the true data if it’s a property that looks good and it was in a decent area and it’s something that fits your criteria. I would say still continue to pursue it. To tie off of that, we have a question, “Would servicing notes be reasons to back out of a loan?” I’m guessing she may have backed down on loan. I would say it depends on what the reason in the servicing comments is. I have one that actually I just saw it on this tape that brought me flashbacks because it was an asset where the property and adjacent to the property, the son owns a house that’s on this tape. The parents own the house right next door to it.
Servicing notes mentioned that the son has some mental disabilities and stuff like that and was living in the house, but what they also did is they made the property of compound, so they fenced in the entire property except for the driveway to the parent’s house. There’s no longer access to this property really from the street. You look at it from a BPO perspective, if they said it’s worth $50,000, I’m like, “No,” because they got rid of a driveway. It’s a shared driveway. It’s not even on their property. There’s no easement for it, so that was a reason to back out and I explained that to them. It depends on what the purpose and reason are. Gail, you may have some more thoughts on that too.
I’m just thinking it’s an awful lot easier to back out when you have standing with people, when you’ve done other trades with them and you’ve been a good buyer for them, then they tend to see these things as less capricious. This is not a criticism of anyone, but newer note investors tend to be a lot more skittish and bailing out on things and you have to establish yourself. I don’t even think about what they think anymore if I withdraw.
The comment came back was it was very shoddy pay history. It was like pulling teeth and borrower was paying with a credit card. I honestly assume every borrower honestly has a shoddy pay history. It’s like pulling teeth.
That’s actually impressive that they have a credit card because a lot of them will never get one.Jumping into a boat on choppy water can seem really challenging. However, at times, you should be experimental if possible. Click To Tweet
Constant letters of default. Typically, I bid assuming that, so it’s a difficult situation to look at. Sometimes some souls would be fine with that, other sellers might be, “It’s a non-performing note. What did you expect?” Oftentimes, especially on land contracts, a big important thing for me is the value and it was performing. That’s a little different story than if they get payment streams. Here’s something I’ll mention too from another question about performing notes that we’ll answer at the end. If somebody pays every three months and catches up every three months and even though the loan is current, I don’t consider that a performing note. You’re going back and forth between paying the additional servicing costs, you’re spending legal fees. A performing note to me is one where, and this is just my definition, but the borrower is paying like clockwork. For me, clockwork is probably eleven payments a year. They may miss one, they catch up and so forth and so on but it’s when they get 90 days behind, catch up, 90 days behind, catch up. For me that’s not consistent cashflow. I don’t view that as a performing note.
It does increase your expenses too because of the servicing and the extra costs. I’m dealing with that right now. I’m looking at these servicing notes. These people are technically current, but somebody has to call them every month. All of these are serviced by SN and it seems like they have teams of people who do nothing but just call people every month. We don’t have that luxury. We have to feel like we can even either incentivize people to be more consistent or you’ve got to have a game plan. When your mom is feeling better, maybe she will call people every month for you.
From my experience, the deals that the borrowers constantly do that, the back and forth, don’t make any money on these things. I’ve got one where the borrower catches up, go a few months behind, I have to send the demand letter, catches up, goes a few months behind, but then it’s like you’re paying additional servicing costs. Basically, you’re trying to catch up and then he catches up and you’re just getting the legal cost back and stuff. You look at it and we spent all this money and you’re starting to recover some of it. When you look at if you’re in it for $20,000 and I’ve got to spend $5,000 on legal, you may have even gotten it back. It’s still the back and forth and trying to get then rid of that asset. You feel like you’re never catching up.
I feel somewhat better about it on a CFD. There’s a lot of equity in these. If you end up getting the house, it can be quite sweet. Everything they put you through is forgotten.
Another question came up too is when you look at this is look at Column R, the maturity date. For example, row eight has a maturity date of 2016. This one, it’s way behind. I would guess that one’s vacant property and the last payment took a few years and I would bet that house, I don’t care what they have for you, the value on it, I bet the house is worth a few thousand dollars.
How do you explain that discrepancy like this? Let’s highlight one just so we can come back and look at it some more.
What’s that worth? I’m just curious.
Do you mean the BPO value?
Chapter seven, so it’s probably white, $15,000. John, you say there are only sixteen payments left on this thing and you’re paying $200 a month. It’s only $6,000 or so. That’s a $15,000 house.
I love John, but he is so inattentive to these things. That one in New Orleans with the $5,300 UPB, I put in a bid of $2,500 on it and he’s like, “Why is this bid so low?” I’m like, “John, do you ever look at these tapes or do you just send them out?”
We’ll just go through a few things we look at on a tape and so forth. Hopefully, this was helpful. I don’t want to call it advanced strategies, but a few things to make sure you’re looking at on some of these numbers and so forth. We do have a question about there’s a performing note in Indianapolis that was put out by somebody who basically was selling it in about 80% of UPB. I saw this on Facebook actually, and I didn’t get to run the numbers on it. When I looked at the monthly payment, which I think was around $1,000 a month I was like, “It seems like you get your money back pretty quickly.” It’s something that didn’t seem right and I think it’s because it’s newly originated. The question I would ask is if it’s newly originated, did they use a registered mortgage loan originator and the value of the property I think was worth $60,000, $70,000 on loan. Something like that usually gets me a little nervous because at that price point, the people should be able to get conventional financing, unless they’ve got some really bad credit. The other question is I don’t think I said what the property’s worth, so that’s why it could look like a great deal. If it’s 100% loan-to-value, which you may see on some of these deals, your equity is not covered and I would stay far away from that. It was sold at $90,000. What were the UPB and the price that he saw on it for?
Someone asked a question, “Do you want to cover why Ohio is no longer desirable?” I talked about Ohio with the five-year rule on these new contracts that instead of modification possibly make the cancellation in a new loan mod, should we start that clock? Speaking with my attorney, basically we can’t do that anymore. You can do that but both chambers of Ohio Housing Center passed this new land contract bill, which I think is going to get implemented. It’s also been known in that it’s going to get backdated to when that it passed in this House and in the Senate. What that bill does is, and I haven’t read it yet, but I believe it locks interest rates around 5%. The lender is responsible for taxes, insurance and property maintenance. You’re going to finance a house to somebody and still be responsible for everything. Basically, instead of making them a landlord, you’re allowing them equity in the property but they are being treated as a tenant. I speak with the attorney. He basically noted land contracts can now go extinct in Ohio based on these laws.
Basically, you have all the disadvantages of the landlord but none of the advantages.
You’d make it a note. They’re trying to get rid of land contracts and just make it a note. On that note, it’s sold for $90,000, UPB is $80,000 and $70,000 is what they’re asking for the note. If it’s sold at $90,000 and UPB is $10,000 down, your equity coverage is right around 20%, 80% loan-to-value. I would need to run some numbers on it. Usually, I’m on performing stuff. I usually like to see a little more coverage because if you get a slight dip in the economy and then by the time you pay realtor fees and everything else, it’s high risk. Lease options are okay in Ohio and that is what I view as the goal around is to do a lease option.
She also mentioned that she’s looking at Paperstac. I’ll be happy to hear that. Everyone should look once in a while. There are many loans being spilled on there for par. Par means for the full UPB.If you can put together a team in a place where land contracts make sense and are legal and they work, you can go house shopping. Click To Tweet
They’re being listed for par.
Yes, I can assure you there are lots of horse trading on Paperstac because I get lots of crazy offers.
People can post stuff on Paperstac just like the old FCI Exchange, which I think exchange ones now. You can put things on there for par and so forth, but it’s a complete open negotiation.
LoanMLS.com is famous for everything that’s par.
Sometimes, I’ll be honest. Everyone thinks it’s like buying a car, “I have to get some type of discount.” Or on buying a house, “I’ve got to get some type of discount.” If there’s a loan at 12% with a ton of equity coverage and high monthly payment, which will give you a bit of low servicing costs and it’s a nice house with great payment history. There’s nothing wrong with paying par if the loans at 12% and your yield might be 11%. Actually, if you’ve got some money in an IRA or stuff like that and it’s a house in a desirable area.
Typically, it’s very hard to keep your money deployed all the time. Sometimes you invest and you get a big payoff and it’s exciting. There’s a lot of wisdom to the idea of slow and steady wins the race, particularly if you have an IRA and you’re relatively young. It seems like there are a fair number of pretty young people getting into this business. You would have all enjoyed hearing me try to persuade my daughter to give me some of her money like $3,000 in order to get a 97% ROI on it on one of the CFDs on this tape. The phrase, “The confused mind.” She was not buying. I was pitching and she was not catching.
The other thing too is I could sit here and throw out spreadsheets all day long and show to people things that if you have $20,000 sitting in an account doing nothing versus throwing it in a partial or a performing note that’s paying $300 a month, that’s $1,800 that didn’t make and then that can also compound. The longer you have the money sitting there, you should invest it in something.
You’ve said that many times, people sit around waiting for the home runs when they could be getting lots of base hits and compounding along the way. I think people are starting to sell partials more, which you can buy for relatively small amounts. There’s a lot available for $10,000 or less. That’s perfect. People are trying to build up their cash in an IRA, particularly you young folks, give it to Chris. He’s got partials.
This is not a solicitation. I’m reading this bunch about security laws. That was actually going to be my Note and Bolt if anybody has any questions about some of the things that I’m learning about reading security laws. What’s interesting is reading about security laws and we always hear people talk about joker brokers and stuff, and we’re looking at a tape here from somebody who was a broker. The interesting thing is a note is a security, just like a stock. We use that as an example. Some of these joker brokers will take a note that they do not own, do not have any relationship with the seller and try and sell that for a commission. Think of it the same way as you walking down the street and somebody says, “I will sell you 100 shares of Apple stock. I’m going to charge you this much of a commission,” and the person’s not a financial advisor or anybody else. That would be illegal. Basically, it’s the same thing with a note. If you try and broker notes and you’re trying to charge the buyer a commission and you don’t have any pre-arranged agreement with that seller, you are illegally selling security.
If you do list notes on Paperstac, particularly if they’re high value, you will get many approaches. I got so many solicitations and it’s actually a problem that Paperstac, they patrol to try to keep that to a minimum. There are always new people popping in and making those offers and wanting pretty high commissions too like 4%. I have a note up there for over $115,000. At 4%, that’s pretty hefty. It’s more than a realtor and they would do an awful lot more for it.
Somebody asked a question about a broker named Brett Leavitt who requires 3%. I’ve heard that name before.
I can’t believe he didn’t pitch me on Paperstac.
I think somebody mentioned him as somebody who was legitimate, but also may have been somebody who also was selling some of these assets and wanting 3% from them, which we may have a little more history on. We don’t need to get into that. The way I look at it from is as you people get to learn this business, you’ve got the Direct Source who is connected to a hedge fund, which we’ll call it the low-hanging fruit. There’s Dave Pollio with SN, another seller who he’s affiliated and works for SN. There used to be Paul Burkett who used to sell some stuff, who doesn’t put much out there anymore and so forth. Kirkland puts their own stuff out, but I would say outside of that I can’t really name, besides one or two other people, a legitimate broker who represents hedge funds at the moment. Somebody says that they represent banks. Banks will not hire a broker to sell their loans. They’re not going to pay the person and it goes back to the fact that it’s illegal. There are a few other services that may use a few people or companies here and there. For the most part, I’d say 99% of them that are out there are not legitimate. Would you agree?
Yeah. Let’s say on Facebook or you will be threatened with a lawsuit. Don’t name names.
AHP, American Homeowner Preservation, they are not legitimate. Jorge Newbery, who runs it, he basically has a bunch of crowdfunding that he raises money to buy a bunch of notes and they sell it off to actually just start a servicing as well. They sell their own product. They’re not brokering somebody else’s product. They sell their own product as Kirkland does. Gemini, who used to be one who used to sell some stuff. I haven’t seen anything from them in a long time. Granite used to sell their own stuff. We have Condor who sells their own stuff.
There’s a mega-organization called Rocktop that sells to most of these people. To the ones that John Keith puts out are not Rocktop but Kirkland, Condor, most of those sellers that we are used to talking to get all their stuff from Rocktop. They sell a minimum. For those of you who are now thinking, “Let’s go to Rocktop.” Their minimum sells used to be $2 million. They were talking about jacking it up to $10 million. Basically, you can’t go shopping at Rocktop if you’re just a regular person, unless you’ve got a ton of money. In order to have a ton of money like that, if it’s coming from more than one person, you have to have a fund.
Somebody mentioned Watermark Exchange is one. I actually did a video. I think it may have been when you weren’t around that I went through ten to fifteen places where you can find to buy notes. Watermark, Madison, LoanMLS, Paperstac, Exchange Loan. Sylvia mentioned something that she saw somebody put a warning about their last list. I’m not sure who he is, but you’ll see some people will give out warnings, probably Scott Carson, about their lists and stuff. I’ve had issues in the past where I’ve put out a list of people in this group and I tell them, “Be a primary buyer only.” I’ve had people who have turned around and got them under the agreement in some instances. I’ve seen them on Facebook posting them for sale. Gail, I know very well who are selling notes to Michigan, basically sending an email saying, “What happened? Did you pull this from us?” I’m like, “No, I wouldn’t pull it from you. Why would I do that?” This person says they own it. That’s a joker broker and they call him out and the person then tries to call me, text me, send me a message along, trying to pull in somebody who does training in this to say to vouch for him and stuff. It was pretty crazy.
I just want to say too for people who are frustrated when they can’t find things that they want to buy, and it has been a very dynamic, fluid and shifting marketplace, even in the time that you and I have been active note investors, Chris. I know if you’re trying to jump into the boat on the choppy water, it can seem challenging. At times, I think you should be experimental if possible. I’ve actually had some good experiences buying distressed houses, and then not necessarily super-duper distressed. If you can put together a team in a place where land contracts make sense and are legal and they work, you can go house shopping. I did this in Flint, Michigan successfully. Go buy a house. When you think about it, what’s the difference between buying a house or a vacant CFD? Other than the fact that you’re going to have to spend more money to get full possession of the CFD and you’re not going to know what the inside looks like. Whereas if you could go buy a house that’s up for sale or is for sale from a wholesaler, you can see the inside. You can know what you’re getting into, what the budget should be and whether the numbers will work, fixing it up and reselling it on a land contract. You can create your own land contracts starting with a house instead of searching for things where the numbers work.
Here’s a dirty little secret that I throw out to everyone as well. Look at how many assets you’re looking to acquire in the next several months. For me, I’ll be the first one to tell you, I don’t spend time calling all these banks and everything because personally some banks may have assets to sell, but I think you’re going to spend a lot of time and effort with trying to find banks. There’s not a lot of stuff they’d probably look in the move off their books when you have an appreciating market and they don’t have a high inventory because somebody’s job is to work these out. Why would this person sell all this product that he’s supposed to be working? It’s called job security. The way I look at it too is I get a list from John of between 300 and 600 assets a month. Let’s be honest, sometimes it might be 200 of the same ones there or whatnot but still.
I’ll just use this one example. Let’s say I want to buy 50 assets in a year, which is a lot. Most people would probably agree that’s a lot. That’s four a month and I’m getting a list of 300 to 600 from John. If I can’t find four assets on this list, then this is really that much garbage or I am too picky. The reality of it is I’ve gone through this tape and I wasn’t going to bid, but I ended up getting on a few assets and there are some good assets on this tape. There are some that are not so good on our toxic asset list, but when you get these and I see a lot of stuff from you like Dave Pollio coming out and stuff, you’re probably going to get 500 to 1,000 assets a month. If you can’t find five assets out of 500, then you need to rethink whether notes are what you want to be involved in. That criteria won’t fit, your box might be too small. Thank you for joining us. As always, make sure to sign up at GoodDeedsNoteInvesting.com so you can get on our preferred list for getting assets and tapes we have coming out earlier. I’ve got some stuff probably I want to put out there.
The next tape should be quite juicy. You’ve got to sign up. Be sure to do it. Thanks. Go out and do some good deeds.
Thank you all.
- Direct Source
- Chad Urbshott – past episode
- Notes and Bolts Good Deeds Note Investing – Facebook
- FCI Exchange
- Dave Pollio
- American Homeowner Preservation
- Watermark Exchange
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