Verifying the Value of a Property

3 Replies

I am interested in purchasing notes, however, have concerns about being able to accurately value the property attached to a given note- the collateral. As a former real estate agent who has completed BPO's, I understand their limitations in valuing a property. A BPO will not unearth unseen problems that may exist, such as termite damage, excessive interior damage caused by an occupant, etc. How do you manage this issue? Thanks so much!

You cannot really "manage this", that is why you buy notes at significant discount. This way you have cushion to work it out and fix potential problems. As a note buyer, you cannot gain access to the property and cannot contact borrower. Everything you do to value the assets needs to be sneaky. There are many great tools, websites, and agents that can help you get as close as possible to the value. Don't forget, notes are an investment and every investment carries some sort of risk with it.

Also, if the house looks immaculate and manicured from the outside, then it is probably close to that on the inside and its maintenance. If the property looks like a crackhouse on the outside you should already be able to guess what the inside looks like.

I agree with @Roma Korenyuk in that you always assume some level of risk when purchasing a note. You will never really know the condition of the house inside. We have bought some notes where the homes are pristine-looking on the outside, but a hoarder lives inside and has not cleaned in years. Or a pipe ruptured and there is significant water damage. A few things you can do is get a realtor to drive the property, take pictures and assess the value as best as possible. We receive a wealth of information from them, such as the paint is peeling, hose is leaning, roof is rotting, windows need replaced, etc. We also assume there is going to be a rehab required. Pick a fair cost per square foot for the area you are looking at purchasing the note and factor that cost in. You don't have to rehab. You can sell it to an investor instead but they will appreciate a guestimate of repair costs...