All Forum Posts by: Dave Van Horn

Hi @Cameron York,

As always, since there are a lot variables at play, I have to answer this as "it depends".

With that in mind, when we moved into the 1st space after having experience working with 2nds (years after the story I told above), we learned that if you're purchasing NPN 1st liens or High Equity NPN 2nd liens, you're more or less looking at the same thing due diligence wise: geography, foreclosure timeline of the state it's located, and the asset backing the note (i.e. the condition and value of the property). And of course these factors would reflect how you bid and acquire assets.

We also learned that there are less categories of 1st liens vs. 2nd liens since most have equity. This can make acquisitions easier in terms of analysis and justify the higher price point due to the safety of asset. But on the flip side 1sts tend to have lower percentage yields than 2nds.

It's when an asset is upside down (in terms of equity) that it really becomes statistical based on previous data and tougher to talk about without getting too granular.

Best,

Dave

Hi @Ilona Kovacs

We work with about 15 IRA companies across the country, and they all have their pros and cons - the biggest tend to revolve around their fee schedules. Now these schedules depend on the amount of your activity and the type of activity that you plan to do - i.e. certain IRA companies could charge by the type asset, by the number of assets, or by the amount of money in your account, etc. And to many people's point in this thread, some charge you every time you write a check, which if that's something you plan to do often, an IRA LLC may make more sense.

The top 3 we see our clients work with are CamaPlan, Equity Trust, and Quest IRA. Cama Plan and Quest are relatively local to a large percentage of our investors (and were both formally a part of Entrust), and Equity Trust is the largest in the US I believe. I would suggest shopping around, seeing what the most popular have to offer you.

Best,

Dave

Hi Cameron,

I always tell everyone my first note was my student loan. The only problem was, I was on the other end of the note, as a borrower instead of a lender/note owner.

But my first NPN story is a little bit different, I've told this story elsewhere so apologies if I'm repeating anything to anyone reading this.

It's actually a little hard to remember my first note, mainly because we bought 4 notes to work at the same time. Now we were dealing specifically with NPN 2nds, so it was a bit different than if we were buying NPN 1sts. Not that there is a magic number, but I do believe your odds of success at both learning the business and making a profit are better when buying more than just one note (in 2nds world). Early on we learned that the when dealing with NPN 2nds, it wasn't like Real Estate investing - where you could profit off of every single deal. It's more statistical and until you learn your bid strategy, overhead costs, etc, your profit margins will start to increase and your odds of getting wiped on any one loan will decrease (although it's always a possibility).

So back before the economic downturn, my partners and I purchased 4 high equity NPN 2nd mortgage notes. After a periods of many months we learned the outcome was this: one note was a grand slam, one was a home-run, and two we didn't make any money on. We purchased our notes from a note fund based in NYC that we had a relationship with (and I always say knowing your note seller is key). Since they were high equity and current on the 1st, we knew that would limit some of the risk and we learned that it simultaneously cut into our profit margins since they cost more than other categories of 2nds. We did the standard due diligence, completing BPO's, reviewing borrower credit, etc.

For us, it wasn't the profits that really mattered as much as the experience we gained from these 4 notes. It was all learn by doing - the administration, how to handle the collateral, recording an assignment (with the process being different in each county/state), learning how to deal with attorneys, learning our potential exit strategies, working with the borrowers to determine their intent, hiring a servicer, etc. Now it took longer than how we do it today, but we were tracking our data for the future and we always made a point of being proactive. We never waited for something to happen, we were constantly following up and staying up on top of things. The biggest thing I learned in that regard was that, when necessary, there's nothing gained by waiting to start the foreclosure process. 

Now today it's different than when we first started. A debt buyer's/debt owner's license seems to be more of a necessity and having a servicer in place at the outset is key, but hopefully my points of being proactive and having the correct level of expectations still rings true.

Best,

Dave

Thanks for the mention @Chris Seveney

Hi @Account Closed

Chris is correct. We no longer provide formalized coaching but now offer a standalone note course. Unfortunately since I wrote it, I can't exactly review it but I can go into a little more detail about what you'll find in the course itself.

I guess the easiest way to describe it would be that it's essentially an elaboration on our Introduction to Note Investing E-book with much more detail on both the Performing and NPN side of the business.

So it's 100+ pages that basically go through the life cycle of a loan explaining every step of the way. So we cover Sources of Capital, Finding Notes, Due Diligence, The Financials of Note Investing (with more in-depth case studies), Managing Risk, Exit Strategies/Borrower Management, Recapitalization, Note Contracts, etc.

It also features a robust 17 page note glossary, FAQ's, and comes with a slew of sample documents and forms like an Accounting Template, an Assignment of Deed of Trust, a sample Billing Statement,  Credit Report (Sample), a sample Deed of Lieu of Foreclosure, a sample Discounted Payoff, a sample Fair Debt Collection Letter, Homeowner Authorization Template, Homeowner Options Letter (Sample), a sample Note and Mortgage, RESPA Letter (Sample), and Satisfaction of Mortgage or Deed (Sample), just to name a few.

And although we no longer mentor, I should add we do have free Note Investor Q&A's calls bi-monthly that I host with my business partner who is the director of Borrower Management at PPR. He's personally worked thousands of loans, so between the two of us we can answer pretty much any deal question you may have.

But I understand some investors want more hands on training and there are mentors/coaches out there for different price levels. If I were to personally recommend one, a former student of mine who is on the site (@Bill McCafferty) has just started a program of his own. So if that's what you're interested in, you may want to reach out.

If you have any other questions feel free to reply on here or message me directly, I'd be happy to answer them.

Best,

Dave

Thanks for the mention @Daria B., I agree. 

I use a servicer for my seller-financed notes. Many servicers will do things that as a single investor, I cannot do (or would not want to do as a passive investor). Just to name a few things, many servicers can accept credit card and online payments, they can send monthly statements, and they can even handle accounting - sending out a 1098 at the end of the year. 

Overall, it looks more professional with a servicer and they're usually fully compliant (so it relieves me of a lot of liability), all for a nominal fee. Personally, I'm using FCI, but there are plenty of other servicers out there as well.

Best,

Dave

Hey Bob,

I think it really comes down to the quality of the paper and the quality of the underwriting (and when it was underwritten). What I mean by that is, is it up to today's standards?

If it's not, it might be best if the current note holder modifies the loan up to standard, if that's a possibility. You could also see if the borrower moving into the property changes the terms of the original loan and how it was underwritten. So say it was underwritten as a commercial loan or a rental property, with the borrower moving in it could be a perfect opportunity to modify the loan to today's standards.

Or the last option is: if it's not up to standard, you could buy it as-is but that's a business decision. I would check with your legal counsel as to what the compliance penalties/ramifications are in the state the loan is located and the likelihood of enforcement before making a decision. There may only be a small penalty (if any) depending on when the loan was underwritten and/or the type of loan it is - which could definitely influence your decision on whether to buy the asset (and how much you want to pay for it). Like my partner says, there's no bad assets just bad prices so it still may be a viable asset in that case.

And last but not least, pay history may also give you the likelihood of any of this ever being an issue. With the borrower occupying the property, that definitely puts the odds in your favor.

Hope this info helps.

Best,

Dave

Hey Jeff,

If I were in your shoes, one way or the other I would start foreclosure. If you don't, speaking from experience, the likelihood of the borrower paying you is slim to none. And if that doesn't work out, you'll be exiting through the property so either way you need to start Foreclosure ASAP either through Peak, your own attorney, or the speciality servicing department of your new servicer.

As for how you do it...I don't know exactly when Peak plans on closing up shop but if you get too far along in the process you'll run the risk of possibly having to start over with the whole legal process with a new servicer. It's a tough call because the FC process can be quick in Texas (assuming that's where the note is located) but there's always the chance of what I described above and losing money along the way.

If a servicer doesn't feel comfortable taking on this type of loan, I would move on and find another. There really shouldn't be an issue of boarding a loan like this if said servicer has a specialty servicing department. I would imagine a servicer like FCI would take on this loan. Now as I said, a new servicer may want you to start over in the legal process but that's usually because they don't want to jeopardize their standing with regulators if the process wasn't done correctly by the previous servicer. Also they may prefer to utilize their own attorney network. But if you switch now after only sending a demand letter, than that's not a huge deal. You're not really losing much.  As for the cost of re-boarding the loan, that's unfortunately just the cost of doing business.

I'm not sure you're experience level but to remain compliant, I would advise against taking it into your own hands unless you're a licensed debt collector or debt owner per the requirements of your state.

And if you take it back as an REO, that's after the fact of Foreclosure so no matter the exit, you'd still have to get clear on that first.

The good news is it's still occupied and since they paid in some money it looks the borrower may want to maintain their interest in the property. 

Best of luck

- Dave

@Ken Martinez Just sent!

Join us September 14th at 8PM EST for our FREE Note Investor Q&A Call!

For this call, my partner Bob Paulus (PPR Director of Borrower Management) and I will discuss The Note Investor's Biggest Fears.

Whether you're a new or seasoned investor, there may be potential threats to your note deal lurking right around the corner. What are they? What can you do to minimize them? 

And, as always with these calls, we'll reserve plenty of time for your live questions.

So bring any and all note-related questions, and run them by note investing experts...for free. To register for the call, please follow the link below:

https://www.pprnoteco.com/call-sept-2016/

Call-in information will be sent via email following registration.

We hope to hear from you on the call!

Would love to do it again next year! Can't praise @J. Martin enough for putting on an amazing event.

It was also great meeting and catching up with @Rachel Bier, @David Krulac, @Joe Fairless, @Brie Schmidt, @Dawn Anastasi, @Chris Clothier, @Bobby Sharma, @Vrej Garabedian, @Jon Klaus, @Chad Brey and @Anja Wehrmann. And I'm sure there are plenty of others I'm forgetting to mention!

Speaker wise, some highlights of the Summit for me were:

- @Kathy Fettke's awesome talk on Market cycles and Market timing (REI is not just "location, location, location").

- Nav Athwal's great discussion on utilizing more technology to provide more transparency and access to information for your clients).

- Also enjoyed @Brian Burke on Syndications, Jennifer Levini on Tiny Homes, and too many others to list.

Couple of other takeaways:

- I learned about giving a property away as a charitable deduction - specifically If you own said property for more than a year, you can donate it to a 503 charity at Fair Market Value. Which could potentially be HUGE for us -Thanks to David Krulac

- Also gotta love @Rick H.'s marketing phrases. Will definitely be saying "rack the shotguns!" more to my marketing team!

Oh and the biggest takeaway of all was that I should start calling myself the TurnKey Note-Dingo!

Best,

Dave

P.S.

For those who are interested, I uploaded my presentation slides to my profile here on BP. Check it out if you wanna take another look at the case studies, get links to resources, etc.