…It’s A Beautiful Thing
I love this time a year because I was a basketball player in my youth. I was the point guard, so I got to handle the ball on every play. With many of the college conference playoffs starting later this week, with everyone pointing to the national playoffs, each team is putting together their game plan to maximize there chances of moving to the next round. The note business has many similarities as a basketball team; if every team member does their job, then everybody wins.
Last week I talked about options when a plan doesn’t come together. Not that someone didn’t do their job, it’s just that the numbers didn’t pencil out. This week, different story.
The house pictured above is in Michigan City, IN. An owner occupied house valued in the $73,000 – $76,000 range. We were able to secure this promissory note at roughly 50% of current market value. The borrowers are owing for the April 2015 payment, with their payment amount considerable lower than what this house might rent for. This adds significance when the borrower considers the costs to move to a rental home vs. working a modification to remain in this home. The total collectible amount on the mortgage is near the value range. Every indication at this point, and without a conversation, is that these homeowners want to stay in their home, and we will work to find a solution that works for everyone.
Here’s a few things that make this transaction special:
- The seller of the note and I were in good communication regarding our mutual goals. We both understood each other’s objectives and were able to reach a bid price that made sense for both parties.
- The numbers worked. The value from my BPO was in line with the value from the seller’s BPO. There were minimal property taxes that we will work to have the borrower pay them during the modification discussions.
- We had an investor commit to fund the transaction. This investor is quite excited about the prospects on this transaction. If we are able to execute our game plan, and the borrower’s can modify, make 12 monthly consistent payments, and we resell this note at a profit, this investor and & will enjoy a 77% ROI. In the worst case, if we have to foreclose and it takes a full 12 months, then the ROI is about 27%. This profit will go right back into this investors self-direct IRA. Not too shabby.
- The loan is already set up with a mortgage loan servicer that I have a relationship with, so there is no stress associated with a servicing transfer.
- I’m already engaged with a special servicer to do the heavy lifting on the modification.
Now we have that waiting period where the seller transfers the collateral file to me. This is the file that contains all the original legal documents, include the mortgage, the promissory note, title policy, and the assignment of mortgage with the allonges/endorsements to the note.
For this file, all the team members made the right plays. They caught the ball when it was thrown to them. Made the layup when expected. And kept the ball from going out of bounds. For the investor, the note seller, the homeowner, and myself, we will all win. It’s a beautiful thing.
2017 is shaping up to be a great year for note investing. I submitted a bid on another property yesterday, and there are more to review, and more bids to be won. I even understand there will be a small balance note pool happening in the next couple of weeks. If you have debated with yourself about finding out more about passive investing in real estate notes, now is a great time to contact me. With note sellers looking to liquidate at the end of the quarter, this really will be a time of march madness.