1) what do you look for in the due diligence process of buying a performing note?
There are a lot of factors that go into the DD process for NPNs. First thing before digging too deep into the other parts of DD is to do a virtual view of the house. Google map around the area, is the house still standing? Is there cars on bricks? Is it currently occupied? Get a lay of the land before doing any other DD or you might just be wasting your time on the other parts.
After this it is best to establish a value of the house (realtor, narrpr.com & zillow), take the mean estimate of all together in your excel spreadsheet to get a good baseline value.
Next is to review taxes on your county site (these are fun sites to navigate...not :) ).
If the place hasn't been sold at a tax deed, keep moving to the assignment chains.
That is a good overall view of the DD process. I hope that helps out.
Next if all is well, you will want to look at the O&E reports to get a better idea of the asset
2) what discount should i expect to get 80%-90% UPB? If that is the case get ready for a major headache. That would have major issues if it was discounted that much. It really just goes with how much work you want to put into the asset and what your exit strategy entails. If you're wanting to turn the asset performing and it is still occupied, the work could be worth it.
3) from your experience what are the terms of investing with a JV when someone gives 100% of the funds and the other party puts in the work/sweat (sourcing notes, setting up the payments, negotiations etc). I don't think there is a baseline average, I think it matters who your investor is and what your current relationship entails. If they are unfamiliar with mortgage notes, then their risk tolerance might be different than yours. Plus if this is your first time working a mortgage note, that might be an issue.
The main thing is make sure you are protecting your position in the deal.
4) what would you say the advantages of performing notes upon regular real estate investing (buying a house and renting). Advantages would be the types of exit strategies outweigh what you can do with regular real estate investing. You will also be able to get creative if you seller finance, sell partials of the note, purchase from your IRA, etc.
Lastly you don't fix any toilets when they break, you're their bank not their landlord.
5) what kind of return should I roughly expect? No way to really answer that confidently, it's all over the board.
6) in theory how would you go about building wealth with performing notes? arbitraging bank loans to buy notes for example ?. Purchase NPNs turn performing and refinance for 360 months. Collect the monthly payments (season it for 6 months), sell partials, repurchase the loan after the partials expiration date from your self-directed IRA for $100. Collect the remaining payments on the mortgage tax free till the loan is paid off in its entirety.
