All Forum Posts by: Andy Mirza

@Matt Devincenzo We're using a different valuation company, which uses a wide range of values as opposed to BPOs which come back with just one value and is not nearly as accurate. (There's usually a really wide range between "as is" and ARV, for example.) Our new property valuations reflect this and tends to undervalue the RE because it assumes that the properties are in average or below average condition, which isn't always the case. When we finally get to see the interior of REO's, our RE values can and do up.

@Rob Hayes Sorry, i didn't answer earlier! I didn't realize that this was going to turn into a post.

To answer your question: 

2 of the 11 have already liquidated

1 as a short sale in Skokie, IL

1 sold to a 3rd party at the sheriff's sale

Of the 9 remaining:

1 is an RE about to hit the market in Fairview Heights, IL

1 is a DIL in Park Ridge, IL

1 is waiting for confirmation of sale in Berwyn, IL

4 have upcoming sale dates (including 1 in Harvey, IL)

2 are pre judgment

@Jay Hinrichs Yes, in general, the judicial foreclosure states are the "worst" because of the timelines. Chris has NPNs in judicial FC states so when he says that DC is the worst, I'd like more details :)

We operate in IL and NJ (not PA or NY). The best advice for investing in those states is: 1. Buy at enough of a discount to make it worthwhile for the additional holding time & carrying costs, 2. Make sure you have a competent attorney that understands time is of the essence to motivated, private investors.

We stay on top of our files & make sure our attorneys are getting things done as quickly as possible. Yes, you can get the judge and/or borrower who does things to slow things down but that's why you need that extra cushion.

I wish that all states would go to non-judicial foreclosure. It would be way better for everybody, especially the mortgage states where people have been sitting in houses for decades without paying anything.

@Chris Seveney Interesting. We haven't bought anything in DC. In your opinion, where does DC rank as the worst place to have a NPN in and which ones are worse?

@Shadonna N.Can the tenant get regular financing? If so, that's really the best option for the owner to maximize the net proceeds.

Unless you're in the origination business, you're probably going to have to sell a seller financed note at a discount. Most secondary loan market buyers of performing notes are looking for a yield of 9-12%+, which means that the interest rate on the note has to be 9-12%+ to get par.

If the market in DC is hot and the tenant cannot get regular financing, the best move is to give the tenant notice to move out and put the place on the market.

I invest in notes because I find it interesting. The NPNs have something wrong with them & I enjoy the process of figuring out the most efficient & profitable way of liquidating them.

I went into notes after having built a small portfolio of rental properties & I realized how much I disliked dealing with "trash, tenants, & toilets." 

One thing that's similar though are low income tenants & delinquent borrowers of lower price point properties. It's not exactly the same but I haven't completely escaped yet!

@Daria B. This can be confusing. I'm not an accounting expert but I've noticed that, sometimes, there are a few different ways to book things that are acceptable. Other times, there's only one way. Ultimately, the best advice comes from your CPA. Find out how he or she wants to book these types of transactions and then stay consistent with that method.

@Philip Klinck I've never exchanged a note but I can see the possible reasons why a person would want to. Your example is a great one to show "why."

I used to go to a meeting of Exchangors and thought it was fascinating. A bunch of investors get together to try to make deals where cash is the last thing on the list. I loved it and thought it was great, especially for out of the box, win-win thinking.

However, it wasn't a good fit for what I was trying to accomplish so I stopped going. One problem with exchanging is that it's not scalable. Every deal is different and takes a lot of time.

I'm raising capital to buy & liquidate NPNs. It's a scalable business model since we're buying essentially the same product & using cash.

For our note funds, we set aside about 10% of capital raised as reserves. We set these aside for operating costs (foreclosure costs, note servicing, insurance, property tax advances, etc.) and minor rehabs for REOs.

More than that amount makes us feel that we're holding too much idle capital. Too little and we feel that we run a greater risk of getting into a liquidity crunch where we run out of money. (We've never done a capital call with our investors and never want to.)

When we have substantial rehabs for REOs, we might get a hard money loan to provide the extra capital.

Future plans include getting warehouse and lines of credit with banks to help with liquidity as well. Really, I think that's the final step to maximize efficiency and stability with reserves.

What are others doing out there for their reserves and capital management concerns?

@Wesley I.Yes, it was a NPL.

I wrote a blog post about it here on BP if you want the full story.