All Forum Posts by: Patrick Desjardins

People being fools doesn't excuse crooks abusing the system. Even as a moderately experienced investor I rarely expect large 2nd mortgages, and they are purposefully making it so the amounts look like they would be a first.

Granted, in Florida you have amazing online records to do due diligence.

Don't hold your breath trying to buy a note for 80k if the ARV is 250k. People make mistakes, but rarely mistakes of that magnitude. All he has to do is shop it around to get better offers and then you'll sound like a scammer to him.

"how to explain to him why my offer is reasonable"

You can foreclose and make your 135k+arrears back most likely within a year, and you wanted face value but here take this 80k offer and sell me the note because someone may have "abandoned the property with pets left locked inside".. Call me a naysayer but I don't see it happening.

Instead of telling him I'm offering 80k, I'd tell him I can't pay face value because if she restarts paying then I'm stuck with a 7% investment which is way less than other investments I've been making. You can buy an already performing note at 12%, and this one is a NPN and he knows it's probably going to foreclosure. I need to account for legal fees, a likely bankruptcy, repairs, closing costs of selling it as a Reo etc.

So how much does he actually need for it, considering the risks involved? If he still says he wants face value then you know he probably won't negotiate.

Hey Jake,

Make sure you only lend a safe tranche of the purchase price. A great book about hard money lending is George Antone's "The banker's Code", which I encourage you to pick up.

As far as your #2 question, there really isn't a great answer for it.. what's been the return on your flips? Do you enjoy it?

One is an active form of investing, the other is passive.. in the grand scheme of things passive is better, but it's a slow way of making money.

This scenario actually doesn't sound very complicated. I would disregard some of the comments above.

Buy the note and put it in no collection servicing. Since you already have a relationship with the homeowner, have your foreclosure attorney handle the deed in lieu for you. Make sure there's no junior liens on the property and check the amount of back taxes.

As far as % goes, depends on your negotiation skills but if the UPB was 30k and it's not habitable, you should get it cheap.

 And time.

As Wayne mentioned it's not necessarily a deal breaker but it can be a major opportunity cost. For example I have one right now where they've been working on it for 2 months, and we can't start foreclosure until it's resolved. And who knows if they'll even fix it?

That's a long time to have your money tied up in a stalled asset. Double check with them and see if they have the assignment and it has just not been recorded. If they don't have it or want to send you a lost assignment affidavit, be wary.

Your question is kind of vague. Is there a tax reason you DON'T want to charge interest? Like, is the income going to push you to a higher bracket and make it not worth it?

Doing a no interest loan is silly (to me). If I can sell something for 125k and go buy a 10-12%+ reperforming note, I would do that over owner financing 135k at 0% interest. 10% return on 125k is $12,500 a year mailbox money.

For your seller finance scenario to be worth it, you would need to get at least 8% from the borrower + 10% cash down.

Just in my opinion.

They are no longer responsible for the debt, but the debt stays attached to the house. If they want to stay then they have to get into an agreement with you. When the house is owner occupied it's very common, you just have to make sure that they still have income. Often they are getting rid of credit card debt, medical debt, or judgments.

You have no idea how often borrowers will say stuff like "it's been discharged" thinking that the debt just magically disappeared and they got a free house. They will ignore you / your servicer until you're close to the foreclosure date, then they realize it's actually true and many will work with you.

Ask your accountant what he wants you to use. The reason why most people use Quickbooks is mostly because that's what accountants use and it makes it easier to transfer files and generate reports. As Adam mentioned, mine did recommend the desktop version as well.

Lease the farm to the family with an option to purchase, or something. If all they want is to inherit it after she dies then they're not really attached to the property itself.

The aunt needs money to live off of.

Few quick pros and cons off the top of my head, having bought seconds for a few years.

Pros: 

- cheaper to get into (you can get high quality ones for 10-20k)

- safety through diversification (you can buy more notes with the same money and spread your risk that way)

- generally much higher returns (we've had a lot of notes with 100%+ returns and recently got one with 1,000%+ return)

- typically don't have to deal with taxes, HOAs, and as with all notes don't have to deal much with physical property

Cons:

- Less inventory available, with rising prices and more competition

- Lots of underwater inventory so you often run the risk of a) getting wiped b) having note sit in the drawer for a few years

- Have to deal with scum-of-the-earth bankruptcy attorneys

- Requires much more interaction with the borrower, since foreclosure is rarely the optimal play

- Fixed costs are killer on 2nds (ie 1 foreclosure on a 50k first is a ton cheaper than 5 foreclosures on 5 10k notes, so is servicing etc)

There are a ton of pros and cons to both, and both are great. Just a few things to keep in mind.