All Forum Posts by: Account Closed

@Gina Birdsong - just a tip, Capital One has an FDIC insured money market account that pays 1.40% vs 1.0% in the savings account. Only difference is you are limited to 6 withdrawals per month (which I never come close to).

I realize this isn't big numbers in the grand scheme of things, but picking up an extra 0.40% for free is something I will gladly take

I think you really need to research what this bank investment promising 5% is. 5 year treasuries are 2.5% so whatever they are promising at 5% must come with the risk that you could lose your investment.

Paul Allen is spot on with emotional control being important I’m still early in my investment path with just 1 deal, but I think sticking to these 3 simple criteria will work best for me: 1) something I understand 2) something I can place a value on based on fundamentals (sorry Bitcoin) 3) something I can buy at a deep discount to that value Obviously that makes it really tough to find deals in todays market, but (1) when I do find one, it is something I can easily sleep on and (2) it naturally forces me to slow my investment pace in today’s hot market, and pick up my pace as prices come down (whenever that begins to happen). In the meantime, a lot of my time is spent accumulating cash/savings and networking

Thanks Dave! I unfortunately can't make it this year, but as soon as the 2019 early bird tickets are available I'm 100% in! This looks like a great event.

Also - #FlyEaglesFly

I didn't suggest one way or the other, was just curious to understand why you picked NPNs (which may or may not end up cash flowing in the end) over rentals and performing notes (which most likely produce cash flow immediately), since you mentioned you want cash flow

To your question, I think starting with 10-30k in rentals is pretty different from notes. The main reason is rentals have leverage available, so if you are employed then you could get a mortgage for 80-96.5% of the value of the property, meaning your 10- 30k could theoretically buy a house up to $857,000 (not that I would recommend it). Notes on the other hand are an all cash game, so your 10-30k is going to buy a 10- 30k note, which to Chris and Mike's point is probably on the lower end, and it's likely if you are not familiar with the space, will mean that your potential profit margin will be eaten up by the costs associated with NPNs. 

Third, maybe I'm just conservative, but I wouldn't borrow from my 401k for a first deal. Just work harder to save up or find a partnership (or ideally both). I bought my first note because I (i) have a background in lending/finance, (ii) have the cash saved on hand for purchases and reserves and (iii) have built relationships with experienced investors who can help me when I have specific questions. I don't think it (or any asset class) is a space to rush into without planning for what could go wrong.

Good luck!

@Nicholas Candaffio - you mention you are looking for assets to provide cash flow. Out of curiosity why do you think NPNs are the best place to start versus rentals or performing loans? 

Just want to follow up here as several folks have reached out to me regarding Note Factory

Background & Overview:

Mike Arch and co. manage two firms in San Antonio. The first is Alamo Home Source where they buy, rehab and owner finance properties within certain blue-collar neighborhoods of San Antonio. Owner-finance loans are typically 30-year, fixed rate mortgages, 10% rates and around 95% LTV. Because these loans are to owner occupants and have a high interest rate, they qualify as High-Cost Mortgages under the HOEP Act, so Alamo has to ensure certain things are done like using a licensed originator, confirming the borrower's ability to pay, using a servicer, escrow accounts, etc.

Once this is all set up and completed, Note Factory will market the note for sale. The notes are sold at 100% UPB. All servicing of the note is done in-house by the Alamo/Note Factory team.

I went to San Antonio to meet with Mike Arch a couple months ago. He was a very nice guy and took me on a tour of the areas where they are active, and we went into a couple of the homes currently for sale. I was also introduced to several folks at the firm including the servicing team and one of his partners. Was really nice of him to spend the time educating me on their business and showing me around the city. After the meeting we both had some time to kill, so we went to a local brewery and chatted about travelling and politics. 

Conclusion:

All in all I had a very positive experience on that one day visit, and the logic behind the business made sense to me. I also liked the fact that these guys clearly stick to markets they know well and aren’t interested in expanding beyond their area of expertise.

However, in the end I decided these loans weren't a fit for me given the 10% fixed rate at a 95% LTV. In my mind, at that leverage point you have the same risks as if were an equity investor, but your returns are capped as if you were a lender, so was difficult for me to rationalize the purchase. Clearly some people will have a different view on risk/reward and like the idea of a fixed rate return, so I leave it to you to make the final decision. The decision was not made because I had a bad feeling about the team or other red flags, was purely a view on the numbers.

Of course, please do not rely solely on this review for your end choice. I encourage you to meet with the team yourselves, do your due diligence on the loans, and have backup plans in place in case you have to go through a workout/foreclosure scenario.

Hi @Sonu Sharma,  

Once the loan is created (presumably using a licensed originator), I would recommend you

- make sure the loan is property recorded with the county

- onboard it with a servicer, who will manage payment processing and track outstanding amounts due

- require that the borrower make monthly insurance and tax payments to your servicer, who will keep them in an escrow account for payments

- get the contact information for the home insurance company, many of them should let you be listed as the lender on the property so you can be notified if for some reason the borrower cancels the insurance

If the borrower tries to sell the property without notifying you, your loan will show up in the new buyer's title report so one way or another you will know. If they sell it as subject-to, you/the servicer will see the payments are being made from a new account so again you will learn of the change, up to you if you want to trigger the due on sale clause (your deed of trust should contain the relevant clause)

I'm not sure what you mean with legal issues if the buyer isn't happy with the house. If the sale has gone through clean, you are just the lender now and it's not your issue if they change their mind. The borrower can sell the house if they dont want it and pay you off.

Handling foreclosure is pretty straightforward in Texas assuming all your docs are properly done in the first place. Your servicer or attorney can help but shouldnt take more than a couple months. 

Ha - I was just watching a replay of the 2016 meeting, was a nice surprise to see BP represented (had no idea @Mindy Jensen was in it)

If anyone wants to see the question and buffet's response, go to youtube and search the below, then go to 4:41:31

"Warren Buffett & Charlie Munger Full Q&A - Berkshire Hathaway 2016 Annual Shareholders Meeting"

No problem. I know funds like Blackstone and now DoubleLine are coming out with mortgage products, but those are usually higher rate mortgages that traditional banks wouldn't do because they aren't guaranteed by Fannie/Freddie. 

Very possible there's a new product I'm not familiar with, just don't see how it would work in practice. If it's 0.25% cheaper than 30 year bank financing, doesn't seem like something the hedge fund could easily securitize or raise capital for to hold.