Oh, I Almost Forgot
I’ve Had My Head Down in Due Diligence
You’ve been on this journey with me as I’ve been working to develop a successful note investing business. In addition, I still need to maintain attention to my day job. Trying to navigate both, along with being attentive to my duties as a husband and father, well, it can get a bit crazy. This week, I found myself with several new tapes to break down, submitting new bids, working on existing files, uploading Assignments for recording, receiving collateral files, working with servicers, and on and on. As you may recall, I have a significant day job for State government. We are in the heat of the legislative session, so I’m dealing with budgets, legislation that directly affects me, legislation that indirectly affects me, and other items of partial interest. There is a bill in the legislature that will require licensing for mortgage buyers, like myself, to be registered with the State. So I said all that to say this: I’m busy.
Most of this weekend, I’ve had my head down working through tapes. Yeah, and watching my Oregon Ducks win a couple of games and heading to the Final Four. Go Ducks!! Northwest vs. the Carolina’s. Going to be a wild ride. Just like note investing.
You see, when you get a tape, you’ve got to narrow down a large list into a smaller portion, based on my personal model and instructions from my investors. The photo shown is a small portion of some Ohio assets that are all currently owned by a handful of credit unions. The original tape had 264 assets, and I’ve whittled it down to about 50. From that 50, I will break that down to about 10 – 15, and make about 7 – 10 bids, hoping about 2 of them come together. This is my bracket for my Elite 8.
Each one of the colored ‘pins’ on the map represents an individual asset, and they are color coded within certain value ranges. The values on this tape range from $12,000 up to $200,000. The lower range is a bit lower than normal and the upper range a bit higher than normal for me. Yes, there are houses that only have a value of $12,000. Here is what a $12,000 house in Cleveland, Ohio look like:
So think about this. The current payments on this house are $680 per month. If you bought the note for $5,000 and reduced this owner’s payment to $500 per month, that would be a 120% ROI. This house has a rent estimate of $800 per month. If you couldn’t work out a solution for this owner and had to foreclose and rent the house, after foreclosure costs and such, you still could have a 120% return.
I approach each tape as if the information presented is suspect, and my job is to confirm or reject each bit of information. When I am working on the map, I can click on the pin and it takes me down to street level, with the address and the value estimate shown. From that, I place a color on my tape spreadsheet that represents my interest level. From that, I continue on the validate the three most important due diligence factors: Value, Taxes, and Title.
I look at about 7 or so different value websites for each asset, look at each county’s website to see about taxes and any potential title issues, make a determination on what a potential exit strategy might be, run some numbers for estimated yields, and submit an indicative bid to the note seller. Then wait for their response.
I’ve done that about 5 times since Thursday, on tapes that had 264 assets down to 35. All different sellers, different tapes, review of these maps, looking at county websites and finding an asset that works for my model, and for the investors that have placed their trust in me.
Oh, and one eye on the Elite 8, now narrowed down to the Final Four.
So what I almost forgot to do is write this email and send it out. This has been my journey for the past few days. I still have more to do yet tonight, but I thought I would check in and let you know I’m working hard for you, and especially my investors.
Here’s where I say, that you, too, could be an investor with me. It would be my honor to talk with you about improving your returns on your investments by investing in promissory notes secured by residential real estate. Remember, this Friday is the end of the 1st Quarter, 2017. How did your current investments perform this first quarter?
Thanks for reading. Let’s chat if you would like to learn more.