Using Notes as Collateral - Posted by Steve

Posted by David Alexander on May 27, 2000 at 24:22:32:

Start Looking for defaulted loans, or paper with other problems, being with the payor or seller. That is where you will find the paper with the highest yields. Fix the problem and BAM! your yield goes up.

The Good paper out there is being fought over by the institutions at very low yields (9-14%).

Seconds can be bought at a discount of 30-50% giving you yields of 25% plus in alot of cases.

Or as you mention create your own deals and have an infinite yield by getting all your cash back out.

And we havent touched improving the paper.

David Alexander

Using Notes as Collateral - Posted by Steve

Posted by Steve on May 26, 2000 at 13:28:41:

Thank you for your response. You are very helpful and I, along with many at CREonline, are deeply grateful for your participation. I read your article on financing paper, but I guess the whole spectrum of possibilities did not register with me. I understand the concept of financing the purchase of notes, but it did not occur to me that if I already owned the note I could use it as collateral for a loan. In any case, will this scenario work? I purchase a $100k FMV house for $65k cash. I get a hard money loan to close the purchase. I now advertise the property for sale with owner financing for $110k, $10k down with the balance at 11%. Buyer’s credit is fair. I then get a loan based on 80% of the face value of the note and use the proceeds to pay off the hard money loan. When the dust settles, the underlying loan in the deal is the one with the note as collateral. I get some of my profit in cash and the rest in a monthly cash flow.

Also, I am looking to invest approx. $150k in a portfolio of notes yielding at least 18%. I have a mortgage broker that can feed me plenty of small seconds that will achieve this goal (15% rate, 6 points, 18 mo. balloon). Do you have any other suggestions? I know you call balloons “foreclosures in embryo”, but as an active investor I would not mind owning the property in case of default (as long as its a property I like). Thanks.

Easy to say, harder to do - Posted by Bud Branstetter

Posted by Bud Branstetter on May 28, 2000 at 16:54:34:

To buy a house at 65% for cash is easy if the house needs fixed up. Finding the motivated seller of a house with no rehab costs is much more difficult in a sellers market like most of the country. The rehabers around here prefer in have an ARV in the low 70% range.

Then the problem becomes to find a lender for that 80% loan on a note. People like FNAC has a program at something like 11.5% interest. Very few banks will consider it so you are left with private money in most cases.

Problem on buying thes small seconds is control and foreclosure. In states that take six months to foreclose can you feed the kitty(1st lien) while you try to get title and possession. In states like Texas where it only takes a couple months you are better off but I still want to know the first month the 1st is not paid. Most lenders wait months befor filing foreclosure notice.

That is why doing subject to deals create the same cash flow but allows you better control. Buy subject to and sell on a wrap contract or L/O gives control and high returns but is more active than passive. The broker’s seconds are fine but don’t bet the farm on them.