The official cash flow note thread

[Go Getter]

- Who you know in the business is key for deal flow. My advice is to not attempt to chase seller financed note deals.



If you have any other questions, shoot.

If you dont have the money to buy them, you gotta start somewhere.

[ChumpChange]

Over the past five years, I have invested my portfolio heavily in private money financing consisting of 1st and 2nd TDs on properties in the Orange County / Los Angeles area. I've stayed out of the distressed debt market and instead have focused on the fact investors can have a great return on ivestment due to banks no longer lending to people even though the transaction makes sense. Properties with a LTV under 60% in an already depressed market. I basically put people who need money(through loan brokers) in contact with those who have money(who I represent). I've written approximately $45,000,000 in notes through that time. I am starting a new phase over the next couple of months actually setting up a Reg D fund.

There's a lot of opportunity out there. Protect your money and more importantly, protect others'.

Industry Overview:

The Capital Markets are paralyzed due to recent regulatory changes, poor underwriting, inflated home prices and a global recession. The mortgage industry is experiencing high delinquencies, legacy issues, archaic technology, inadequate workflow and capital restrictions.

The new lending environment is an ultra-conservative one, where financial institutions are reeling over past indiscretions. The majority of borrowers can’t qualify for the government-sponsored loan programsneeded to obtain real estate financing today. With the MBS and CMBS markets frozen, direct portfolio lenders are left to fill the void.

The financial crisis has created a tremendous opportunity for a portfolio lender to generate high yielding conservative loan-to-value loans that are not high cost and are in compliance with the new Dodd-Frank (H.R. 4173) Wall Street Reform and Consumer Protection Act; but do not qualify under any Fannie Mae, Freddie Mac and FHA guidelines.

[ChumpChange]

My advice is to not attempt to chase seller financed note deals.

Absolutely agree! Seller's have other motivation beyond a return on their money when selling a property. Those notes often carry a higher LTV and a lower interest rate than a note written without a sale in mind.

[SWELLS]

Spencer - I believe we exchanged emails a while back but I've since started my own company and lost your email shoot me a PM with your address so we can talk further

For anyone who wants to get into distressed debt investing (secured by real estate) it takes an awful lot of education, but it's totally possible even if you work 9-5. This is not a "no money down" game and requires some specialized knowledge.

This thread started with a question about cash flow which requires a different perspective on note buying. In most circumstances an investor is buying non performing debt (borrower defaulted and is no longer making payments) with the intention of controlling the asset through the foreclosure process or orchestrating a deed in lieu of foreclosure with the borrower.

Assuming you bought the note at a steep discount, you are effectively 'creating equity' which allows you 2 relatively easy exists - there are many more but these are fairly straight forward but by no means easy.

1. Foreclose, get the trustees deed upon sale and flip the collateral (at the risk of losing the audience here, you as the note holder are like the bank - you control the bid price at auction so you can have the opening bid be $20,000 above what you paid for the note and if even one person bids you're 1st trust deed is paid off and you make $20k).

2. Rewrite the paper to make it performing. If the borrower couldn't make a $2,000 payment, can they afford $1,000? If the numbers make sense and you reach a deal with the borrower you can sit back and collect the check each month or sell the note since now it's performing.

How do you find non-performing notes?
-Build relationships with bankers in the special assets department or secondary marketing group of financial institutions. It's easier to work with regional banks because B of A, Chase, Citi are so big and bureaucratic you'll spend days just trying to speak with the decision maker and soon you'll realize it's highly unlikely you ever will
-Build relationships with money guys if you're not using your own capital

Keep in mind you can buy 1st trust deed notes through out the united states for relatively small sums of money - you'd be amazed to see investors controlling real estate through the note acquisition process for $20, 30, 40k; no, you won't be buying in Orange County but the point is this business can be done with out ever seeing the property once you know what you're doing.


The opportunity to buy non performing residential notes will always be around it just so happens now is the best time investors have seen in ages. There are $13 trillion in residential mortgages in the United States so that means plenty of inventory

A ton of commercial paper is coming due (loans maturing) in 2011, 2012, and 2013 - the commercial market will crumble much like residential did with defaulted mortgages so if you get your feet wet in residential and develop the right relationships, you can be poised to take on the commercial market next year.

[Spencer]

If you dont have the money to buy them, you gotta start somewhere.

Explain. You need cash no matter if its a bank originated note or seller carryback paper.

Seller financed notes are created when a property owner carries paper on the sale, and holds the note. Most of the "gurus" teach you to find these people and offer them ~50-70% of PAR to allow them to cash out. Believe me, its no way to get deal flow, unless you have a team of brokers dealing with these unsophisticated sellers.

Maybe you are referring to brokering notes? Very tough business unless you have a very thick rolodex. I've seen a 99% burnout rate with people I meet attempting to go the broker route, and most never close 1 deal. Stick with property if brokerage is your goal.

[Go Getter]

Lets say I got 20 to 30k to invest, and I buy a note on a house thats say, worth 100,000 or less . (Yes probably in a rough part of town....or does the cost of the house even matter?? ), and I want to refinance the note...How do I do this without an attorney by my side every minute charging me out the ass to make sure im taking all the right steps and precautions?...

I know there are plenty of note-buying websites, but how do I tell which ones are legit and which ones to avoid?. And when it comes time to refi the note, WHY would the seller agree to having higher monthly payments, just so I can make a profit?

I know I need to do more reading on this, and I don't think Russ Dalbey's course is the right place to turn. Anyone here got some good links/ books to recommend?

EDIT: I have a friend who also recently joined L4P, and he MIGHT go into business with me on this (12k maybe). He's pretty conservative with his money though.

[Spencer]

Over the past five years, I have invested my portfolio heavily in private money financing consisting of 1st and 2nd TDs on properties in the Orange County / Los Angeles area. I've stayed out of the distressed debt market and instead have focused on the fact investors can have a great return on ivestment due to banks no longer lending to people even though the transaction makes sense. Properties with a LTV under 60% in an already depressed market. I basically put people who need money(through loan brokers) in contact with those who have money(who I represent). I've written approximately $45,000,000 in notes through that time. I am starting a new phase over the next couple of months actually setting up a Reg D fund.

There's a lot of opportunity out there. Protect your money and more importantly, protect others'.

Industry Overview:

The Capital Markets are paralyzed due to recent regulatory changes, poor underwriting, inflated home prices and a global recession. The mortgage industry is experiencing high delinquencies, legacy issues, archaic technology, inadequate workflow and capital restrictions.

The new lending environment is an ultra-conservative one, where financial institutions are reeling over past indiscretions. The majority of borrowers can’t qualify for the government-sponsored loan programsneeded to obtain real estate financing today. With the MBS and CMBS markets frozen, direct portfolio lenders are left to fill the void.

The financial crisis has created a tremendous opportunity for a portfolio lender to generate high yielding conservative loan-to-value loans that are not high cost and are in compliance with the new Dodd-Frank (H.R. 4173) Wall Street Reform and Consumer Protection Act; but do not qualify under any Fannie Mae, Freddie Mac and FHA guidelines.

What type of collateral are you lending against? I assume NOO RESI and CRE? OO RESI hard money seems to have mostly disappeared due to increasing origination regs.

Best of luck with setting up your fund.

[Go Getter]

Lets say I got 20 to 30k to invest, and I buy a note on a house thats say, worth 100,000 or less . (Yes probably in a rough part of town....or does the cost of the house even matter?? ), and I want to refinance the note...How do I do this without an attorney by my side every minute charging me out the ass to make sure im taking all the right steps and precautions?...

I know there are plenty of note-buying websites, but how do I tell which ones are legit and which ones to avoid?. And when it comes time to refi the note, WHY would the seller agree to having higher monthly payments, just so I can make a profit?

I know I need to do more reading on this, and I don't think Russ Dalbey's course is the right place to turn. Anyone here got some good links/ books to recommend?

EDIT: I have a friend who also recently joined L4P, and he MIGHT go into business with me on this (12k maybe). He's pretty conservative with his money though.

...?

[Go Getter]

Over the past five years, I have invested my portfolio heavily in private money financing consisting of 1st and 2nd TDs on properties in the Orange County / Los Angeles area. I've stayed out of the distressed debt market and instead have focused on the fact investors can have a great return on ivestment due to banks no longer lending to people even though the transaction makes sense. Properties with a LTV under 60% in an already depressed market. I basically put people who need money(through loan brokers) in contact with those who have money(who I represent). I've written approximately $45,000,000 in notes through that time. I am starting a new phase over the next couple of months actually setting up a Reg D fund.

There's a lot of opportunity out there. Protect your money and more importantly, protect others'.

Industry Overview:

The Capital Markets are paralyzed due to recent regulatory changes, poor underwriting, inflated home prices and a global recession. The mortgage industry is experiencing high delinquencies, legacy issues, archaic technology, inadequate workflow and capital restrictions.

The new lending environment is an ultra-conservative one, where financial institutions are reeling over past indiscretions. The majority of borrowers can’t qualify for the government-sponsored loan programsneeded to obtain real estate financing today. With the MBS and CMBS markets frozen, direct portfolio lenders are left to fill the void.

The financial crisis has created a tremendous opportunity for a portfolio lender to generate high yielding conservative loan-to-value loans that are not high cost and are in compliance with the new Dodd-Frank (H.R. 4173) Wall Street Reform and Consumer Protection Act; but do not qualify under any Fannie Mae, Freddie Mac and FHA guidelines.

Chump, was this the thread you were referring to for me to check out?

[ChumpChange]

What type of collateral are you lending against? I assume NOO RESI and CRE? OO RESI hard money seems to have mostly disappeared due to increasing origination regs.

Best of luck with setting up your fund.

We're lending on NOO, OO RESE as well as some CRE all within the postal codes of coastal property in SoCal.

Chump, was this the thread you were referring to for me to check out?

Nah...it was the house liquidation thread as it was referring to what happens and what you need to be able to do when somebody doesn't pay you back on what you lent them:

Liquidating House in San Clemente