GDNIP Ep 27: A Killer Of A Deal
Chris does a case study of a deal in this episode which he calls A Killer of a Deal, the reason being that the borrower was convicted and in prison for the murder of his wife. The property was a performing note, a nice little home that was acquired in June of 2017 that had an unpaid balance of $45,000 with a payoff of about $48,000 and was worth about $70,000. Chris discusses the background of the property and its modifications, as well as the lessons he learned about balloon payments. He also answers some questions about selling at auctions, putting forced-placed insurance, lowering bids, Contract for Deeds, and a lot more.
Listen to the podcast here:Gail Anthony Greenberg & Chris Seveney A Killer Of A Deal
A Killer Of A Deal
I wanted to do or show everyone a case study of a deal. I titled this A Killer of a Deal. The reason I titled it that was the borrower was convicted and in prison for murder. There are some interesting little sidelights to this story but that was one of the first things I found out about. That’s where they were. A little background, it’s in Virginia. The borrower was a businessman who was running a multimillion-dollar business and had a mistress, who worked for him based on some of the articles I read online and was trying to find a way to get rid of his wife. They had multiple homes across Virginia and worth millions and instead of trying to do it the easy way, he had some his workers throw acid on his wife and she ended up surviving for a while and then ended up passing from it.
It’s a horrific thing to say the least, but I can clearly tell this guy wasn’t the wisest of individuals of trying to have two of his workers take care of his wife by throwing a certain type of acid on her. Has anyone heard of divorce? That is true. You always wonder what’s going through people’s minds and there’s a lot in this story that sets the tone. This property was acquired in June of 2017. It had an unpaid balance of $45,000. The payoff was about $48,000. The house was worth about $70,000. It’s a nice and cute little home. The principal and interest was low. It was only 3.25% because there was a modification at 3.75%. When the borrower went to prison, his family was taking care of the house and it was a rental and he actually own three houses on the street.
They were using those as rentals and they’re renting for $600 at 3.25% a month principal and interest. They were getting good cashflow. One of the things I want to reiterate is this was a performing note. They were paying for about four consecutive years. A little background, it was modified at 3.75% and had a balloon due in March of 2018. Within a year, they had a balloon payment to pay this thing off. I’m thinking, “I can be a little aggressive on this thing.” They got a balloon and paid off in the year but we’ll talk about lessons learned about balloon payments. As I noted they have four years of consistent payments and it was bought with using IRA funds at 12% return prior to the balloon.
If it was a balloon, returns would have been over 30%. There was no JV partner on this deal. It wasn’t like there had to be money split and so forth and so on. The property was used as a rental and managed by the sisters. The thing that the property did have, I don’t know if I wasn’t thinking completely straight at the time, but the property had some subordinate liens on the property. A time the property was worth $70,000, it has some other liens and if they owed $50,000 those could get paid or a majority of them get paid off. I’m trying to work something out with the borrower on that. My preservation company took pictures of the property when they went at a later date.
A few other things I’ll mention as part of due diligence was performing for four-plus years. It was something that looks like it will continue to perform. My hope was either, they could try and refinance it out or I would turn around and adjust the loan. It’s a balloon date to try and get a little more money out of them. One of my plans or options was instead of paying 3.25%, bump them up to 4.25% a month. They’ll still cashflow the property at $600 and we put more money in my pocket and get that interest rate a little higher to adjust for. My returns would go from like a $12,000 to a $16,000. Those were my two exit strategies were, either have paid off or if they don’t pay it off and see if they could keep pumping up more. The third option was to foreclose but honestly, I didn’t think that was going to happen in this case and I was wrong.
The workout period, this was one where the borrower basically continued to make payments all the way through the balloon period. They went from June through March plus of the following year. It went into April and May, when they kept paying on this note. You can see where I’m going with this. Once the balloon terminated, I tried to increase the payment of $400-plus and try and get them at an 8% interest rate. The borrower came back and said they wanted the payment rate to stay the same. The reason why was they were basically renting this for the brother who was in prison and they weren’t making any money off of it even though it had some little bit of cashflow.
The Foreclosure Process
When you took into account the taxes, the insurance and some of the repairs, which I don’t know what they did for repairs, honestly, I could see how they probably or if there were months where it wasn’t being released. They were basically doing this and not getting anything from it. At the end of the day, we could not reach an agreement. We went back and forth for about three months with them and tried to reach an agreement with them. Unfortunately, we could not reach that agreement. We started the foreclosure process. As part of that process, the borrower did have their tenant vacate. They didn’t fight the foreclosure process. Unfortunately, a deed in lieu at the time didn’t work out because of some of these subordinate liens that I didn’t want to take on. That wasn’t the option. I was dropped back down to that only option of foreclosing. The preservation company did come in after they vacated and gave repairs of $50,000. Preservation companies, I’ll be honest with you, their repair costs are usually two or three times more than what I think it would cost.
In this house, the floors were pretty much destroyed. The kitchen cabinets, I honestly don’t know how somebody was living in this house. Over the last few months, it probably got beat up pretty good because at one point in time they had this on the market for like $65,000. They were trying to sell it right before we went to foreclosure. Clearly, this wasn’t a $65,000 house unfortunately. Here’s a key takeaway for people to talk about is lessons learned and every deal you’re going to do, you’re going to have lessons learned. The first one I had is don’t ever assume a borrower will refinance with the balloon, especially if there are subordinate liens because it reduces your options. When there’s a second lien on it or there are liens from one of his companies on there, which there were about two years before the statute of limitations would have expired on those but they were on. Those are things you don’t ever assume. You know what happens when you assume, especially with balloons and subordinates because you also can’t do cash for keys typically. It reduces the impact of what you can do with that loan.
The next item I had was when you have an asset, do quarterly property inspections with a preservation company for occupancy. I picked this tip up about a month ago from a servicing company where I was buying some assets. In the servicing file, they have a company go out every quarter that basically take some photos of the outside and checks on the property, make sure the lawn’s being cut and everything was being done. Typically, they leave a little note on the door and letting them know they came by and they’re for the mortgage company. It says if there are any issues or problems, feel free to give a call. I thought that’s actually a good idea and a lot of preservation companies will do it for $20 to $30. When you think about the overall cost of spending $60 to $100 a year per asset to go get those inspections, it’s absolutely well worth it. When you have a lot of assets, it can get a little pricey and expensive but you need to look in the best interests of your properties and want to understand what’s going on.
I look back at this case and look at these photos with the sink, the bathtub and I included the toilet because lo and behold, the toilet I think is the cleanest thing in this property. I was going through the pictures again and I was laughing because I’m like, “The toilet is the cleanest thing there.” A few other things, the property was listed for $70,000 and I did not send anyone by to take a look when a property is listed. If you have a property, whether it’s the note or a land contract, whatever it is and you see it listed for sale, pay someone if you have to go through and take a look at the property. It’s a free way to get what it looks like on the inside because sometimes they might not have pictures online. Sometimes there are but this was listed for a very short time and I look back at, what could I have done better? You always want to try and learn what it is you can do better. This was one that I look back and thought, “I probably should have done that.”Note Deal: When you have an asset do quarterly property inspections, there are preservation companies for occupancy.
The last is to make sure you will be able to know that BPO does not stand for Best Possible Outcome. That is something I’ll reiterate time and time again, always review and check the BPOs and get an idea. Also, check when you get a BPO, a lot of people look at the number and be like, “Here’s a number.” What did they say needed to be repaired? What were the comps that they were using? I’ll go online and I’ll check the comps they are using and then if there are still pictures of the inside, if that agent was using a comp that was a home that was recently renovated and it’s within the same price area or price point, I’ll push back on that BPO and be like, “This isn’t legitimate. Get me some real data to go back with.” You’ll find that where they’ll pull data and some of these agents will pull, “Here are three houses within a mile that sold within the last three months,” without looking at the interior of them. It can throw you for a curveball.
There was on one occasion where I had a property worth more than what the BPO came back at. In most instances, I would say they come back at properties usually 30% lower. 20% to 30% lower, if I have to throw a dart at it and I know people have talked about 10% or whatnot. When you take into account if you go to trash out and everything, if you got a BPO of $50,000, expect at the end of the day to sell that thing for $35,000 or might get $40,000 but you put $5,000 in trashed down and do other things. One thing I cannot stress enough is on some of these BPOs to focus and make sure, you look at and understand them. Just don’t look at what the number says on them.
On this asset, the other thing too was borrower was paying their taxes, they were paying the insurance on the property. It was a performing asset. I don’t want to say I got too greedy but when I wanted to get that payment bumped up a little bit because after servicing and everything, I’m clearing $300 a month and letting them collect, cashflow a property at 3% and 3.25%. For me, the numbers didn’t work and I wanted to try and get out of this deal in a way I could. Unfortunately, in a sense, did they call my bluff a little bit? They did, they basically said I’m not doing it. I had to turn around and foreclose on them.
We have a question, “Did you attempt to refinance when the balloon was due?” This was a note where I was in the first position. I tried to get them to refinance but they didn’t want anything to do with it. It was in the borrower’s name who was in prison. To get him to refinance, they need a power of attorney. They said they were looking to it, but they wanted nothing to do with it. This was their opportunity to tell their brother that, “Sorry, we lost the house because we didn’t pay for the balloon.” I truly believe based on the servicing comments, they didn’t want anything to do with this property, especially the condition it was in and trying to get it fixed up and they’re collecting rent for their brother. They’re doing it out of the goodness of their heart. I don’t think it benefited them.
Inspections are also very good for insurance purposes. If you have insurance on the property and there was a claim, you have photos from prior to the claim and after. That is absolutely beneficial. All in on this deal, how everything turned out? I paid $32,000 for this, all in costs were under $35,000. The reason why that wasn’t higher is because the borrower made, $3,000 or $4,000 worth of payments. If they hadn’t made those payments and so forth, my own costs would have been closer to $37,000 to $38,000 at that point in time, which this didn’t go to auction. My auction price at the time was $40,000 because I wanted to dump it. BPOs and agents, even in the condition it was in were still telling me, get between $40,000 and $45,000. It’s not in a somewhat desirable area of this location. I went in and I said, “I’ll bid it $40,000 and see what happens.” Nobody bid on at the auction. The one thing to ask, whoever your attorney is, whoever goes to the auction, ask them who had the highest bid before they go. If it doesn’t reach the reserve or your bid, ask them who was there and ask them if they got any subsequent offers. Meaning there was a guy here who went back to the attorney and said, “I can give him $32,000 for this property.”
I basically told him at the time, “I’m not interested.” I continued to look at it. I realized, “Let me at least go back to them and counter.” We ended up settling in a price of $39,000 and the person who ended up buying it was actually a wholesaler who turned around and he sold it for $41,000. He made $2,000 for doing nothing. I got rid of a property. From a percent return-wise, it wasn’t a great show-stopping return. I got 12%, which is what I was getting when it was performing, but it made $4,000. I was listening to Joel Markovitz and he mentioned, IRR or your return doesn’t pay your bills. It is how much profit you make is what pays your bills. This was $4,000 in a retirement account that is sitting in a regular bank account would have made $100. You can look at it that way. It’s typical, all of the things that happened in his deal where it went from a performer to non-performer. The condition of the property. Honestly, I look back at it and I would never pay $32,000 for this note. I ran the numbers and if I was doing this, which is a year and a half later, I would probably be in the mid-twenties even on a performing note. If the seller doesn’t want to sell it at that price, then fine by me but definitely we’ll leave more wiggle room in there.
If that was the case, the deal would have made about close to $10,000 on $35,000 then I’d be up around 30% return in that worst-case situation. That’s the deal I wanted to share to everyone but I thought it would be an interesting story because of the other side parts to it, with the borrower being in prison and unfortunate. It’s one of those things when I look back, try and play a little more of the psychiatrist on some of these deals. Trying to look at, “What is the situation the person is in?” Probably looking back at it, I wouldn’t even have bought this note because of the fact that, “I got a guy in prison and somebody else’s family is managing this thing. What incentive is it for the family to manage this? Is there really any incentive? Even though they’re paying, I got caught up too much in, “It’s paying note with a balloon. I can cash in on this balloon and the house is going to be worth all this money if I foreclose. If I foreclose, it’s going to sell for the total payoff at auction and I’ll get all my money and make 30%. I probably didn’t fully analyze the full package of the downside or negativities that could have occurred.
Selling At Auction
We have some questions, “When it didn’t sell at auction, does this mean the property ended up on a struck off lists at auction buyers can go in and buy on or are they contacting you directly?” They contact me directly. After the auction basically, my attorney got their names and contact information. I reached out to them directly and of the houses I foreclosed on, the first one I foreclosed on, sold at auction. The other three that come to mine, this is one that I took back and someone at the auction bought. There was another one that’s similar where it went to auction, they didn’t bid at the auction, but I ended up actually selling it for more than what my bid was at the auction. That was a nice little win-win from that perspective.
Another one that at the auction I bid at, I’ve actually sold for a greater than that value. Now that I think about it, I can think of at least a fourth one that did that and a fifth one that I got an offer in on that is an all-cash offer on a property I foreclosed on. The price that I got now was higher than what I bid on an auction. We have a question, “When you bought the note, did you put force-placed insurance on it until you found they had insurance?” Yes, the day I fund a note, I put force-placed on it and if they show that they have insurance, then I take it off and sometimes I may get hit for a month of fees but it’s well worth the risk. I use J.B. Lloyd for my force-placed insurance. What’s nice about their system is there’s an online portal where I can go in and add a property very quickly. With them, you pay by the month. I know there are other insurance companies where you fill out the form, they send you what it is and you have to pay by the year. It can get pretty pricey when you’re paying for the full year where each policy cost $500. If you buy ten notes in $500, you cut a check for $5,000 for that force-placed insurance. It’s something that you should definitely include costs that you have with your JV partner provide on the flipside, if it’s something that you can pay on a monthly basis versus the yearly basis. I find that a little simpler because it’s easier to go in and cancel.
When you’re paying by the year, you have to send them a letter canceling it and you’ve got to wait for your refund. Whereas in this system, I can go in and change the insurance, whether I wanted to increase the limits, decrease the limits and do whatever. I find it more user-friendly. We have another question, “When doing your numbers for ROI, I also look at if I take it back, if I could sell it to investors at 70%. Do you lower your bid for your ROI number or SS percentage?” My ROI calculator has eight or nine exit strategies on it that calculates the returns for each scenario. From there, it allows me to determine what the worst case is and bid off of that. I can tell you based on bidding on probably a thousand assets that I can look at a tape and tell you what the lowest or worst exit strategy is going to be. I can look at ten assets and understand based on them what the principal and interest payment is versus the UPB versus the interest rate and the fair market value. Right off the bat, I know which exit strategy most likely is going to deem the lowest return.Note Deal: Your return doesn’t pay your bills. How much profit you make is what pays your bills.
For people who are looking at assets, for contract for deeds 90% of the time, the lowest return is actually if they start re-performing. You’ll think about that and be like, “How could that be the case?” The reason why is when you look at some of these returns or payments on them, when you’re paying $150 a month, it’s a low monthly payment. If it’s nonperforming, you have to look at it is if sometimes if it was a performer and bid it off of that price. If you see $30,000 UPB, call it paying $150 a month, if it’s nonperforming, maybe $6,000 to $8,000. Even if it was performing, I’d say that’s what you bid would be because if you look at it, $150 is paying you $130 a month, times twelve, you’re taking in $1,500 a year. You want to make sure you get your money back on that. It’s something definitely to take a look at in those numbers when you’re looking at things. Understanding what that worst case exit scenario is.
Property Preservation Companies
Property preservation companies, there’s a bunch of them out there. US Best Repairs is one. They were working on this property asset for me but there’s a bunch of them out there as well. First Allegiance is another name of a company. Sand Castle is another one I’ve used as well in the past for property preservation. There are a bunch of nationwide companies. The comment I’ll make about property preservation is if you’re going to have them do work on the property, check their estimates. They’re typically a little high on that. Lawn cutting varies significantly between them. Changing out locks and winterization can change significantly. I’ll use one if I’m changing out locks and getting a lawn cut versus others if there are more other things to be done. They’ll give you a list of their pricing and services so you can compare and use one for different types of properties.
Contract For Deeds
We have a question on CFDs, “You mentioned that I would go by as is value, especially when you have such a low payment.” For CFDs, the way I analyze them is, I’ll look at what the original CFD loan amount was and when it was originated. That’s one component to get an idea for what the price is. If they had a $30,000 CFD back in 2014 that property might actually be worth more now. When I started looking at the monthly payments, that’s the key to look at. Some of these loans that are still of the UPB of $28,000 or $29,000 might only be paying $150 a month. Let’s that was a performing CFD. One thing you want to look at is if you’re targeting the 12% yield, I put out some performing CFDs out to people. Let’s say you’re netting $125 a month. You’re netting $1,500 a year, at 12% the most you’ll want to pay for that is $12,000 or $13,000 even though the UPB is like $28,000.
I’ve seen people post things like bidding 80% and if you bid 80% of $20,000 or $22,000 how many years is it going to take you to get your money back at $1,500 a year? It’s going to take you fifteen years to get your money back. That’s something you definitely want to be careful of on the CFD front. Some of the benefits of the CFDs, if it goes in default, you actually get the property. There’s good and bad with that. You get the property but you also can’t go after somebody for the deficiency. If they completely trashed the house and it’s only worth $10,000 and they had a $30,000 or $40,000 CFD and say it was an investor who owns six or seven other properties on a CFD, you can’t go after his other properties. From what I’m being told, you might be able to in a civil case but the reality of it is it’s much different in a mortgage. If somebody has ten properties and you foreclose on them and you sell it for $50,000 or less than what they owe. That $50,000, you can file a civil case against them and get a judgment which you can then attach to their other properties.
Trying To Collect
It’s one thing that I don’t know many note investors that do that but there is that ability to do that. 90% of the time probably even higher, the person that’s getting foreclosed upon doesn’t have any other assets or properties. Some instances they actually do. “Why isn’t you can’t go after other assets?” It is state-dependent, but typically in a land contract, land installment contract, contract for deed, your only remedy is the property. It’s similar to having a renter in your property, if the renter in your property trashes it, you can sue them for the damages and so forth. What are your chances of trying to collect? I don’t believe in those instances. You can’t go after their other property. You’d probably have a difficult time doing that. “Will reporting them to Credit Bureau solve that?” I don’t believe so. A lot of times I don’t think a lot of these borrowers care whether or not the Credit Bureau is getting reported to or not.
I got a story that literally something happened, where I have a land contract I acquired where the borrower hasn’t paid. The borrower reached an agreement a year ago, which would have cut her principal in half. They owed $30,000. The prior owner of the note offered to say, “You start paying me $300 a month, I’ll give you 0% interest for five years. I’ll cut it down and you pay $18,000 over those five years whatever it is, we’re even, we’re good done and the person who owed $30,000.” The person made two payments, stopped paying and hasn’t made a payment in a year. I acquired the note and I tried to get a little creative. We have another property in the same town. What I actually offered this woman was, “You haven’t paid in a year. You basically need to come up with some cash or you’re going to lose the house essentially because there are also taxes owed on this other property and I said, “Here’s a once in a lifetime deal I’ll give you. I will give you a house. It was this other property I have, which I have on the market.”
The property she has is worth probably two to three times what this other property is worth. When you look at the payoff that she owes, she basically owes what’s up to the full payoff. I said, “I’ll switch houses with you. Let’s cancel the land contract and you can have a house free and clear. They can live in and it’s a three-bedroom, one bath house and call it even.” The woman comes back and says, “That doesn’t work for me because I like this house and I’m going to stay in this house.” The servicer commented back, “It’s great you want to stay in his house but do you realize that you actually have to pay to stay in the house?”
Unfortunately, what’s probably going to end up happening is this other property I’ll sell and the house that she’s in, hopefully she can get back on track and start making payments. Track record shows that typically when people get that far behind, they have a lot of trouble staying on. At some point in time, unfortunately, that property may go back into distress. To give you as the thinking of people, when you asked would reporting to Credit Bureau solve certain problems? It’s what we talked about, what goes through some of these borrowers’ minds, I can’t figure out and I can’t imagine. What I’ll do is play the odds. I got to think that majority of these people think logically and they will probably do what most common people would do. In some instances, you get that curveball. That was one of them.
We have a question, “Do I pull credits during due diligence?” No, I don’t. If I was investing in seconds, I would. First, the reality is I care more about the property than the borrower. If they want to get on a payment plan, your servicer typically sends out what’s called a shock package. What that includes is a bunch of paperwork. Basically, it’s a credit app for them to fill out as well as sends them information to confirm that you own a loan. They have to fill that out at that point in time. They tell you what the hardship is and everything along those lines, at that point in time they do. I know some people do run credit reports on them. I typically don’t because for me, at the end of the day you’re going to end up with the borrower, you’re going to end up with the property if anything.
My focus is on making sure what the property is worth and how to make sure I protect the asset and property. Of course, I would love to have them start paying again and start affording things. Sometimes a credit report might say, “This person can’t afford that house.” As part of when you sign up for servicing contracts, it’s the law that you have to treat each borrower in a similar fashion. Meaning, when I fill out the forms from Madison, there’s a form that basically is like, “Will you offer?” Will you, not you have to but will you offer borrower’s loan modifications? I click on yes on that thing. What that means is, when a borrower’s in default, you have to give them the option to at least fill out that paperwork and package every borrower for the possibility of a loan modification.Note Deal: 90% of the time, the person that’s getting foreclosed upon doesn’t have any other assets or properties.
Business Liability Insurance
It doesn’t mean you have to give them one. If they owe you $10,000 in past due payments and say, “I can afford $300 a month and here’s my credit report that says I can do that.” That doesn’t mean you have to accept it because of how far they are behind but it means you at least have to offer it. “Do I have business liability insurance and how else do you protect yourself?” I do a business liability insurance and the other thing I have is my LLC structure is a pyramid. I have entities that own notes, I have entities that own land contracts. I have entities that own entities that are essentially holding companies. If you ever listened to Laughlin and the Rockefeller Strategy, that’s similar to how my business structure is set up.
The reality of how you set up your business is only as good as how you manage it. What I mean by that is you need separate bank accounts. You can’t come and go make funds. You can’t shift assets from one to the other. Everything has to be completely run like a business and each one is a separate business. With contract for deeds, the other thing with the insurance is you’ll have a different type of insurance for a contract for deed than you would for a note. One thing that popped in my head for insurance as well, if you have a note. Your loan is boarded at Madison and it’s a first position note and it gets foreclosed upon. Once it’s foreclosed upon and you take ownership of your property, that force-placed insurance policy with Madison is no longer valid.
You need to get a different type of policy and you have to get outside of Madison. It’s something that I’ve talked to about and making sure if there’s a way for them to reiterate that to owners of notes but it’s not their responsibility in some sense. They got to tell you, “We’re taking this off and it’s coming off your bill.” It’s still something everyone should put in the back of their mind is when you foreclose, make sure you have the proper insurance. “With business liability, who do you have that with? Do you use trust?” I do not use trust, as part of any type of structure. From my understanding trust are more used for identity purposes of trying not to find out who the person is. 7E Investments, who many of you know me as, 7E investments doesn’t own any notes. I don’t buy notes in 7E Investments. If I have a borrower who knows my name or looks me up, they can find my name and stuff and see. If I bought everything in 7E Investments, they could go on my website and learn all about me and stuff. My entities are all in different names that are not things that I market to the public. The one that I offered another home, that situation that was actually through Madison.
Daniel Singer who is a third-party special servicing company. I’ve used them but I don’t use them a lot. I’ve had a great experience when I’m using them but typically a lot of the experiences I’ve had, I use with Polaris who I’ve used a lot, who is comparable to a Singer. They are nonprofit who you can reach out as with Madison as well. I tell people if you use Madison is just stay on top of whoever your asset manager is. I wouldn’t say email them three times a day because you have to remember how many loans they have but in this business, things go very slowly. It’s not after you buy the note, it goes from going a thousand miles an hour to turtle speed. Stay on top and say, “We reach out to the borrower.” You can log in and see if the servicing notes when they’re reaching out or what’s going on. It’s a matter of community staying on top of people and communicating.
“Business Liability, is that errors and omissions insurance?” No, errors and omissions insurance are more for industry professionals like engineers, architects where if they make an error and omission. When I say business liability insurance, actually I answered that slightly incorrectly. It’s an umbrella policy is what I have. I’m not sure the value but I have an umbrella policy that covers. I also have some rental property. Say somebody trips and falls in a property and they sue my homeowner’s policy on there and homeowners only cover a certain amount. I have additional umbrella policy as well as additional coverage that will cover something of that nature.
When you’re investing in CFDs, I recommend you also have as part of your package that you have set up, you also get an umbrella policy as well. I’ll be more than happy to get an insurance person. Maybe Beth from J.B. Lloyd, I could get her on because there are different types of insurance. I noticed several people in the past where you buy a note and then there was a claim a month ago, during the transition or a week before you bought the note, as a current space and claimed space or the two. If it occurred at a certain point in time, then it’s fine. It rolls over to the next person as long as they have insurance. In another type, if you don’t file it while you have that insurance policy, they won’t cover you. A lot of people get that policy because it’s cheaper. I know people who got burned very badly because of that.
We have a question about my umbrellas, I have personal and business because my rentals some of them are in my name. The business ones are around the business. “Those companies that do investment properties overall, those companies are good for CFDs and umbrella policy as well.” Yes, my umbrella policy is with J.B. Lloyd. When I set everything up with them, the price is based off of the value and depending on the size of your portfolio or you work with them in determining what the umbrella is going to be in. The good thing is you can always change it, if you go from 10 assets to 50 assets you can say, “I want from $2 million to a $5 million policy.
We have another question, “Do they help some of us newbies who are starting out?” The last conversation I’ve had with Polaris has been they have scaled down a little bit. I haven’t asked that question, but I know that bunch of them have somewhat scaled down on the borrower reach out and they’re not doing it as often. For people who have been clients in the past, yes, they’ll service. Andrew Lynn Law was my contact and I can reach out to him and again, he’s another great person that Gail and I have talked about bringing on the show as well just to hear from other third party reach out companies. We’re going to have Debbie Mullins, who is a bookkeeper who does a lot of books for note investors.
She does mine as well as I know a lot of other investors. I got her contact information from a bunch of people in Scott’s mastermind group who have used her. She does my books and I know there’s been a lot of questions about 1099s, about the principal versus interest, what’s taxable, what’s not taxable? We’re going to bring her on. We’re trying to get her on earlier, but because she’s wrapping up everyone’s books and 1099, she’s like, “I need some breathing room.” We decided to bring her on where people can come on and ask questions. She’s going to talk about the top five do’s and don’ts of bookkeeping as well. She’s not an accountant but she definitely knows her stuff.
One of the things I see few people talk about bookkeeping, I’ll be honest it’s something that I am a person who tries to do as much as possible, as part of my business. That was the one thing that right off the bat I was like, “I want nothing to do with this,” because of tax implications, audits and everything along those lines. I’m like, “I am paying somebody to do that.” I highly recommend if you’ve got some deals going, especially with some JV partners and stuff to have somebody take care of your books for you. You know you’re going to struggle and spend a lot of time on it. It’s one of those things where it’s not making you any money. It’s something that takes time away from you for doing other things.Note Deal: Stay on top of whoever your asset manager is and reach out to the borrower.
We have a question, “We’re talking about bookkeeping, who keeps track of payments other than Madison? Would that be a bookkeeper?” Yes, it is. I also keep track of it as well in a sense. One thing that’s interesting that I didn’t even think of was Madison at the end of the year sent a 1099 from my entities and Debbie went through and started checking in and say, “This doesn’t match, based on the payments that we got from Madison.” There were some things that I found out to show that Madison during the year sent the payment. They may have sent it or may have coded it as principal when it was actually interest or something. They went back and fixed it but they never sent me a new statement or things along those lines. It’s always good to have somebody else basically at the end of the year, check your books to make sure everything, zeroes out in that sense. When you look at your balance sheet, which is basically about your assets and your assets are equal to your liabilities and any equity you have in there, you want to make sure all that balances out.
You want to make sure the payments, the principal and interest you get from your servicers and from people in all expenses, all of that balances out. Everything zeroes out between what you’ve got in and out the door from the servicer, what your checking accounts or whatever accounts you use all zero out and your book zero out. It’s a saving grace on how much time will it take me to do that versus having a third party do it. Thank you all for joining me. We will be back on our next episode and Gail will be joining us then. In the meantime, stay tuned for more episodes. Thanks for joining us.