All Forum Posts by: Patrick Desjardins

Hey I agree you on a lot of these, and I had not heard about this Wendell fellow. 

But the typical scenario is someone from BP will contact you and say they might be interested in a JV, and they have between 20 and 40k. That seems to be the sweet spot here.

I don't like 20k mind you, and I advise against it because of the fixed costs and low value of the collateral. But I would rather have them do a JV for 25-30k and have a 1 on 1 learning experience than invest 20k in one of the gurus and start at -20.

Anyway.. As I wrote above doing your due diligence is very wise but has to be commensurate with the size of the transaction. There are some people out there going to Scott Carson's bootcamps and then start blasting you with emails pretending they know about note investing and who you should vet carefully. I caught one not too long ago advertising a JV opportunity on a note that he didn't even have under contract so his webinar was all pretend.

Then there are guys like Gene above which I don't know personally but I know he has done a lot of real deals.

That is the concept of tranche, which is really good. Basically the more money in the tranche under yours, the more secure you are. You aren't nuts, I have done it in some circumstances when the person was on the fence.

With that said, while your due diligence is wise, you have to make it realistic. Someone with any experience would have to be really desperate to be willing to jump through all these hoops unless you have a significant amount of money to contribute. Like if someone came to me and said they wanted to invest a million dollars but they wanted me to go get finger printed? Sure. But for 25k I wouldn't bother. 

The whole tenant analogy is rubbish. You're basically hiring someone to teach you how to buy notes, not an assistant or a tenant (who the heck came up with this..). I would be suspicious of someone willing to say or do anything to get into a JV partnership. The whole concept here is the exchange of knowledge vs money. I would be more interested in what they can teach you and if they are a good fit for you. If all you're interested in is for someone to manage a note and for you to be a passive investor then that is a different story.

Which type of note are you trying to purchase? Try to be specific and I'll list some of the things I look at.

So to sum it up, there are pros and cons to buying notes :P

"I came away with a cautious understanding of just how many pitfalls there are in this business and much less clarity on what to actually look for"

There are a ton of them, which is why most people try to narrow it down as much as possible. Maybe it's just me but looking at a tape of 100+ notes is complete information overload. Only way to make sense of it is to segment it. So for example if you're looking at a vacant house in Florida, you'll be concerned about different things than for an occupied house in Georgia, and they will always be the same things with every vacant house you see. You have to narrow down the information into chunks that make sense to you.

"Also, everything is so state specific it’s impossible to generalize"

Yes, that's why all smaller investors try to narrow it down to a handful of markets that they can learn and build networks. Some gurus say you can do everything remotely but I feel like having local knowledge helps. Let's say you see a lot of notes in Illinois and you decide to focus on that state. It would be a good idea to start following what's going on there and have a general idea of the good and bad areas. Not necessarily street by street but a broad overview. Then start talking to property managers / real estate agents and try to find some contacts. With that local team plus your foreclosure attorney in that state, you have a good base.

"I do know; however, that I don’t want to pay 50% of BPO on a note in foreclosure in a judicial state"

Then you're not going to buy non-performing notes until the next recession. Right now I would be happy to buy 1st mortgages at 50% of BPO in most judicial states. You do realize if it's already in foreclosure then that reduces the length of your foreclosure? It can be a lot worse if nothing has been done on it and you have to wait the entire duration.

"don’t let anyone tell you that it’s easy money."

It is easy money until something bad happens. I can't speak about it because it's ongoing, but I'll share a cautionary tale in a few months. It will blow your mind. Stay tuned.

Yes. The hedge funds analyze a pool of notes on a macro level (ie their average results with a certain category of notes at a certain LTV). We get to analyze them on a micro level and dig deeper. Cherry pick the best notes that slip through the cracks.

 Jay, with all due respect, you confuse theory with reality. Yes in theory all of the good notes should get scooped up at the top and only scraps would trickle down. It's true in some cases but it ignores the 2 best opportunities for smaller investors that have the luxury of cherry picking:

1) Stuff that doesn't fit their model. For example, I purchased a note for 4,600 that had been sold 4-5 times. The lady had gone through bankruptcy. Every time a new company bought the loan she told them she wasn't responsible for the debt so the banks / hedge funds sold it, collected their 10 or 15% profit and were happy. They didn't want to deal with it because of the velocity of money concept. As a smaller investor using my own cash, I was less bound by those constraints so I just started foreclosure, got into an agreement, and have since been collecting several hundred dollars per month. Those hedge funds could have done it themself but it didn't fit what they were doing at the time.

2) Good old human error. I bought a heloc for.. I can't remember, something like 2,400. The hedge fund I bought it from thought it was 300% underwater so they were desperate to get rid of it. Turns out the homeowners had paid off their 1st mortgage and the heloc was in 1st, instantly worth 15k-ish. We ended up giving them some cash and doing a deed in lieu. All in for 10k, sold house for 36,500.

Now here's the deal - I'm not disputing your model is most likely easier, more easily repeatable, and more predictable. Those are all great. But saying that no good notes trickle down is just not accurate.

 A promissory note is a document that spells out your promise to repay a loan. So for example if you buy a house, it will mention the payments you're going to make as well as tell you your obligations such as being required to have insurance etc. It also mentions what the recourse is if you stop paying.

A non performing note is basically a promissory note where the person stopped paying. In this case, someone who stopped making their mortgage payments. Because it's not performing, you can buy them at a discount. The discount used to be huge, now it's small.

You sign an agreement with them (workout agreement, loan modification, forbearance agreement) that spells out the details. This agreement is conditional on XYZ conditions such as, in your scenario, them making a 5k upfront payment.

As mentioned, note investing conferences are scarce in the east. IMN started doing one in Florida and had a roster of high level speakers, but I didn't go so I can't really give my opinion. I was told it was good. It is much more expensive than these though, around $1,500, and focuses less on newbies.

Please be wary of certain conferences in the east where the organizers share the attendee list with their friends.. your email will end up getting spammed like there's no tomorrow.

As far as I know, damage done by the people who live there is never covered. Either by forced placed insurance or regular insurance.

It's another thing you have to add to your calculations. I always allocate money going towards repairs. So one note might require 0 but another may require 10k.

To be honest though it's not as common as you would think. Most people don't destroy their own home to spite you. Neglect however is very common.