All Forum Posts by: Cliff Durrett

As a note guy, why would you rehab it? If you can get a DIL and the value is there, the BPO checks out, and your at a great enough spread and have $5k into it, I would consider owner financing it to someone like an investor or maybe a land contract if available, with enough down to cover your cost.

Then you have your money back and their payments are gravy. 

I dont know ANY private lenders who use a servicer. So you could start out that way and then maybe not need one.

Or you could short sale it, etc.

Rehab would be the last ditch effort I would ever consider.

Location, condition, etc are all known before you ever buy, so it not like you HAVE to buy it or will get stuck with it.

Do your DD, REAL DD, not this electronic nonsense and youll probably be ok

And on $5k, a 15% return is only $750...

Hi Jay,

I agree education is imperative, but starting out with :

could not think of anything that would be more risky..

Is really only from your POV, not if done correctly.

What you are doing by buying bad paper to FC is not what 90% or more of note investors want or ever do. Most I know treat a FC as a desperate last resort to be avoided like the plague. They would rather resell the paper than take the time and expense to do that, and unless its vacant, many feel its bad karma to not help the borrower if at all possible. They want cash flow, not real estate.

Now I do buy late stage FC's, where the FC is done, final summary judgement (in judicial states) is done and the sale date is even set. I just substitute my co as the plaintiff. I prefer those that werent OOC and are vacant, but either way I am backing into a "pre foreclosure" asset. Since I started in the REO/distressed asset world, I dont mind taking a property, especially via DIL, but thats not what most note investors want or will do. If trying to get the asset, that is the best way to "skip the line". You pay more, but still offer only what works. Its a numbers game just like buying anything.

A note is no different than a property, the numbers have to work. I see sooooo many people buying RE at crazy prices that I think its 2005 all over again. But that will end up with bad paper, and create more opportunity.

There is about 400 Billion in non performing 1st mtgs right now with the banks. Thats just residential. Not commercial, not 2nds, not Fannie./Freddie/HUD.. so probably a trillion in NPN exist for SFR

And IMHO is exactly why I think it was all done on purpose to prop up (falsely) the RE market. Almost no foreclosures on the market but a trillion in bad debt? Its not uncommon to see a DOLP (date of last pay) of 10 years ago! The banks got bailed out, held onto bad debt, waited for the market to come around and then start working or selling them. I could go on, but if they had FC'd the debt in the past 5 years it would have been MUCH worse than the bubble we last went through... and will again.

Jay

Have you ever invested or dealt with NPL's? Almost all of it is hands off after you buy the note. If you have to FC, an atty handles that as in most any FC. If you wind up with a property WHY would a note investor want or need a contractor much less a property manager? You buy on a spread that allows you to sell either at FC auction or after if need be if you do wind up with the property. You can have your servicer handle everything if you want/need to.

If you wind up with a property, you put it out to investors or list it. How is that hard? 

I buy notes all over the country since 1987. Ive never seen any of underlying properties, why would I?

You get a real, hands on BPO or 2, title search, file exam, FC review if relevant, etc... and offer accordingly.

I can think of many more risky RE ventures, like fix and flip, rentals, etc.

And since you get to see the file ahead of time, allot of the "bad situations" are created by the lender/bank and or their attys. Most of the time the borrower is willing and sometimes desperate to solve the situation, and its the lender, due to stupid rules that govern them that prevents it from being solved. And whats to unravel? You either reinstate, mod, short sale, cash for keys, DIL, FC, etc.....  repeat.

As a former flipper (back in the day there were flippers who flipped/assigned contracts, rehabbers who bought fixed and resold and rentals who kept for cashflow, which is now wholesalers, flippers and end users I guess?)

I had flipped probably a thousand contracts (assigned) but back in the late 1980s and up until mid 1990s you could assign HUD and even Fannie and Freddie contracts. You used to be able to get the actual asset manager on the phone as well!

My issue was that even though I only charged maybe $3k, if the end buyer was a rehabber they wanted to know how much  I was making. Many times that killed the deal. So I started buying and selling the properties, sometimes a double close. Came out the same in the end, which seems silly but is human nature.

The next reason I stopped doing flips (wholesaling, assigning) is the nature of stupid people trying to scam stupider (sp?) people. Even today I get emails about "deals" and a simple calculation shows there is no deal there! Except for the wholesaler of course.

I called it "puffing" the numbers. Using comps that really dont relate to the subject property or neighborhood. Ive seen many guys sell properties this way, which I find sad. Yes the comps are real, but youll never get it for that particular property. A house in Dunedin just sold like that. The wholesaler wanted $199k for it, a tiny crackerbox that needed $50k in work. It realistically was worth maybe $150k fixed. Was unlike any other house in the area which had character. He actually sold it to a sucker for $189k. They will lose their a** on it.

This to me is the real issue at play. By convincing (misleading) the buyer, they got them to buy something that they shouldnt have. That may have been the kids education he just wasted, or his retirement or... Yes they should do their own DD, but if the wholesaler was honest, truly honest, then it would not have put the end buyer in this position.

I prefer to sleep at night and believe in karma.

I see this now allot in the note field. NO understanding of notes AT ALL, but making false claims to get the deal sold. If I have to correct another note "flipper" about equity.... Im glad the note space is much smaller and can weed out the stupid, but there are always those who dont learn before they buy. And note buyers are probably the most frugal buyers (or should be) and even $5k can kill a deal. But someone took a course.... If someone does the actual DD or numbers and brings me a deal, and it works, great, but Id bet 99% of those I deal with have no idea what they are doing, notes or rehabs. Some are still stuck in 2006 though.

I have to say I guess I actually like all the misconceptions about NPNs, keeps more people out.

I see about $50m/ week and yes many are good to great deals

There is over $300B in non performing 1sts right now with the banks, just in sfr, and I dont think that includes fannie, freddie and hud. Then there are 2nds, commercial, etc. Well over $1T Im sure.

If you cant make 25%+ with NPNs youre doing something wrong.

I started with REO in 1986 and notes in 1987, and still after all these years hear the same misconceptions.

I can buy late stage FC (back into the asset with the FC done)  for 67% of AS IS value all day long on nice houses in the $250k to $1m+ range. More in the 50% range for ones not worked in FL, cheaper in many other states.  NY is usually the cheapest due to the FC timeline and FC costs.

Yes some need work, but for the returns its a no brainer and really not that hard as so many claim. Ive rehabbed hundreds of houses since 1987 and notes are a breeze, and thus why I do mostly NPN these days.

Daria, I think that boils down to the time value of money. If someone wants/needs to sell a note now, they may be willing to take an offer allowing the next buyer to spend the months working with the HHF.  Ive found FL HHF isnt that organized compared to SC and other states. So for me, Id rather sell a note now as long as the profit was suitable and let the next buyer deal with the HHF in some situations. Maybe the seller needs to recoup capital for other purchases, or this note isnt in their target market and was part of a pool. Can be many reasons.

As to pricing, I see note buying right now similar to what the big funds like Blackstone and others did for RE. Here in FL they came in and bought $880 million in RE just in the Tampa market. Same in Orlando, Miami, etc. They paid more than any investor I know would ever have, based on a market projection that was risky, but was based on a 5+ year plan and not their money.

Many of their houses sat unrented for almost a year here, but now the market seems to have caught up with what they were asking rent wise (or maybe they adjusted down?). I think in the long run they wont hit their projections (rent for 5 years then sell at a profit), but again its not their money. Anyone who has ever rehabbed and then rented a house knows you cant sell it for top dollar unless you rehab it again.

I always go by hands on Quick Sale Value when getting a BPO, never FMV which so many sellers provide and want offers based on. Dont even get me started when a seller provides Zillow numbers! You have to go through allot of them to find the good ones. But I feel its sad that its almost like the RE market in 2006. Sellers of notes overprice and sell to others who overpay then try to mark them up, never work them and the cycle repeats. Then its assumed thats what notes sell for because "everybodys" paying that. But I dont, and wont. The old adage of "more money than brains" fits well with some companies model.

Ive been dealing with notes since 1986 actually.

And yes, now that the bigger companies are buying huge swaths of notes from Fannie etc, the pricing rises. Since they are playing with OPM, they can lose and it really doesnt matter to them.

Sooner or later though they have to sell it for what the secondary market will bear. Just like in hard RE assets, there are many who overpay and dont last.

Ive seen companies raise $10m+, fail at the note business, then pop back up with a different name, raise more money and do the same flawed plan again. As we all know, its just numbers and either it works or it doesnt. 

I buy off of UPB/BPO whichever is lower of the 2. Many of these companies dont seem to even understand notes. It is nice when an underlying asset is much higher than the UPB, but youre buying debt and may never get the asset even if you FC if the spread is great. Someone may buy it at FC.

I currently sell many of the notes that are out of my area that I buy in packages, have one in SC for sale right now.

Let me know what youre looking for.