All Forum Posts by: Randy Rodenhouse

The lender will have to go in second position. If the LTV is there the lender may be willing to accept the risk with good terms. This is similar to raising money for the downpayment on an apartment where the buyers are getting financing for 65-75% of the deal from a lending institution. The lending institution or in this case the seller finance portion is in the first position in the capital stack and will get there money first. Then a private lender will then get their money. If you give the private lender a high preferred return and back-end equity when you sale the property at some point then you may be able to entice them to invest with you.

There is only a few banks that specialize in IRA financing such as NASB (North America Savings Bank). But better yet is getting the owner to finance the part of the debt but make sure it is a non-recourse note. There are rules you have to follow. See book called "IRA & 401K Income Builder" for rules, etc.

You would need to know the value of the property to determine if buying this second is worth your time.  The borrower owes $530k total on the house (1st and 2nd) and so if the house was worth say $750k then you can foreclosure on the 2nd and take the 1st subject to (meaning you would start paying on it and reinstate if needed).  You would then sell the property for $700k for quick sale and make your profit after you payoff the 1st.  Note:  Once you FC on that junior lien you are now the owner of the property and the first will foreclose on your property if you don't get it current. This can be profitable but much depends on value.  There are other exit strategies but this is just one example.

Not sure why 87% loss. I have had to foreclose but still got the house back which I sold to recoup my capital invested. The only reason this would happen is if the loan to value (LTV) was way too high or if the funds were given to repair the property and not given out in draws based upon completion of work. Typically you are lending at low LTV which gives you some cushion in case things like this occur.

A good deal attracts money.  Simply by telling people what you do and showing them an example of the returns they can get working with you can get you funding. Even better is to ask the seller to finance the deal.  Yes you would need a little downpayment but I have done these deals with as little as $100 since I am willing to pay the seller a premium for the house in exchange for good terms  (as compared to all the low ball offers).  

The discount on Notes for land are bigger and if you sell the note you would get a fairly sizable discount. You definitely need to season the note for a while in order to get the best price. I would probably keep the note and look for additional monies through private lending until it is seasoned 1-2 years.  

I would be careful where I put my notes to service. It is extremely important to have a servicer that is licensed in all states for servicing, debt collections, originations, etc and a long history of dealing with all situations.  Typically a cost of a performing note will be $20-$25 a month and for escrow be additional $10 a month.   

Dustin,

I like your idea since this is something I do as well and it works. Even though many people commented on the term of the note being long I don't see a big problem with it and I (The Note Authority LLC) would buy such a note. Yes usual there will be some discount on the note when you sell it but still will get 75% to 90% of UPB depending on the pay history, house location, borrower, etc. You're not gonna be able to take the note to a bank as collateral to get another loan.

You need to continually tell people what you do and maybe bring to a table a particular deal you’re looking to buy and showing the numbers in a logical manner. Just showing people an example of what you’re looking to do will help them visualize and possibly get them to open their pocketbook in the future. Networking is key such as meet ups, real estate investment club meetings, real estate conventions and the like.  Also getting some experience helps people to know that you’re serious about this business.

We have purchased 3rd position notes and the way we look at it is what is the combined loan value for the first through third mortgages. If there’s some equity above that then it might be possible to sell that note.  Yes there will be a discount.  If it’s in default or if maturity date is past due you can foreclose and take title to the property and start collecting the rents yourself but you would have to continue to pay the 1st and 2nd or eventually they will foreclose on you.  Just the threat of foreclosure and them losing the title to the property should get that borrower off their butt to take action and pay according to the terms of three note.