begginer in the business - Posted by dario

Real Estate Investing
1

Posted by dario on March 11, 2006 at 18:08:05:

Hi David,
thanks so much for your input. Looks like I have quit a bit of research to do! I’ll get on it right away and let you know how it turns out. Have a great weekend.
Dario

2

begginer in the business - Posted by dario

Posted by dario on March 11, 2006 at 12:46:55:

I am a beginner in the note industry and just got my first referal through one of my realtor friends. It seems that a lady sold her home for approximately $350K, the buyers went to the bank and got a first mortgage and the seller, this lady, carried back a second mortgage for approximatelly $37K. Well, as it goes, the payor has now missed the last 2 payments and the seller wants out. She contacted me and wants me to buy the note (I am just a broker at the moment of course). I told her that these notes are extremely hard to sell since they are in second position plus, defaulted payments don’t help the situation any. I told her that If someone could buy it,the discount would be significant. She still wants to sell. I asked if I could talk to the payor to try and restructure the note and terms and she is willing to do that. I am wondering if on a note like this (I realize that in this posting I haven’t provided detailed info but I just wanted you to get the jist of the situation) I should just move on or give it a shot. I am new but I have studied for several months now John Behle’s 5 day tape course and Jon Richards “profits” audios and feel confident except for the fact that if I did get the payor to change and agree to the terms I would then need a funding source who would also agree to the those terms. What if that funding source doesn’t like the terms we agreed on. Anyway, this is my dilemma and of course as you’d expect, the first lead I get for a potential seller is a BRICK like this! I would appreciate any advise. You are the experts and anything you suggest will be greatly appreciated.

3

Re: Start At The Beginning! - Posted by David Butler

Posted by David Butler on March 11, 2006 at 13:51:57:

Hello Dario,

Sounds like you have been exposed to some very good courses, from some very good experts. From those materials, you might have determined that restructuring the note, and on what kind of terms - is putting the cart way out in front of the horse! :frowning:

Now is the time to apply what you learned from those courses! The process is always the same, and for every type of cash flow. First of course, you’ll want to consider the “underwriting” basics the majority of “junior position” note investors would apply to performing paper.

A solid guideline for that can be found in the thread “Structuring The Note!” at the reply “Second-Fiddle!” http://www.creonline.com/cashflow/wwwboard3/messages/13073.html

followed by gaining an understanding of the additional considerations when working with “default” or “non-performing” paper. A good place to start on this score can be found in the thread “NEED HELP on QUOTE for deliquent 2nd” at the reply “Solutions Meeting Needs!” http://www.creonline.com/cashflow/wwwboard3/messages/15580.html

After putting in roughly 20 to 30 minutes absorbing that information, you’ll be in good shape to think this through in terms of everything you’ll need to know before getting too much deeper into this note deal. Now, let’s look at some of the very important MISSING information a potential funding source would NEED to know before making any kind of decision on what may be possible for this junior position note (assuming note in 2nd position based on information you have provided here):

  1. How much did the Payor originally put down at time of purchasing this property?

  2. How much equity does the Payor have in property now?

  3. What is property value at this point in time, and how was that determined?

  4. What was/is Payor’s credit score and income history at time of purchase, and now? (as much as available)?

  5. How much seasoning does this note have?

  6. What was the original loan amount on the underlying senior bank loan?

  7. What are the rate, terms of the senior loan?

  8. What is the current balance on the senior loan?

  9. What is the payment history on BOTH the senior loan, and the delinquent junior note?

  10. Is the senior loan current?

  11. Why is the Payor in default at this point in time?

  12. Is a restructured note the solution here… or this more likely to be a candidate for a CREI looking to purchase a distressed property through the “backdoor” (i.e. buying note at significant discount with the expectation that they will be foreclosing on the property)?

The solution to your dilemma here, is as it with most note buying and selling decisions. We call these the ABC’s of making note deals happen:

  1. What are the deal points here, EXACTLY (all information on both notes).

  2. What are the details on the Payor (credit, income history, current problems)

  3. What is the collateral for the note (property value, equity)

  4. What are note seller’s expectations?

  5. Package the information in a clear, concise one or two page deal summary presentation that a note investor can make a decision on in 10 to 15 minutes or less!

Focus on answering the first four questions by way of using the information I have suggested, and you’ll be able to both get a good handle on the deal, as well as how to package it for an investor. Done correctly, the deal sells itself, or it doesn’t.

And you’ll be gaining valuable experience either way! One of the truly great benefits of being a beginner - if you take a serious approach to working on each note lead you encounter, it is impossible to lose - even if the deal doesn’t close.

Hope that helps, and best wishes for your success!

David P. Butler