NUTS & BOLTS
tractor failed to secure the plumbing prop- erly. This was even worse as it damaged the newly installed furnace beyond repair. I then had to install a second furnace. LESSON LEARNED #4 WHEN SOMEONE YOU TRUST MAKES A GOOD RECOMMENDATION, LISTEN HARD AND EXECUTE! It was now October 2017 , and I was very frustrated with the project. I spoke with two other veteran real estate investors I knew, one a note investor and the other a more “traditional” real estate investor. They both suggested I try to sell the house “as is” by marketing it and closing it myself. This was good advice. In retrospect, I should have done this when I first took possession of the house. However, I wrongly thought that since I wouldn’t buy the house in its current condition and the realtor didn’t sell the house earlier, that it would never sell unless it was fully renovated. This was not reality. I needed to increase my knowledge base and step out of my comfort zone. In January 2018 I did exactly that. I marketed the home on Facebook and Craigslist. I was amazed that more than 40 people contacted me with interest. Many were “tire kickers” but I also had around 10 people physically go and see the house. LEARN THE PROCESS AND ALWAYS KEEP YOUR NEXT STEP IN MIND. HAVE A PLAN FOR THE FUTURE. I used my growing network of fellow note and real estate investors to learn the process of seller-financing. The next step was to vet the applicants. Other friends referred me to a veteran residential mortgage loan origi- nator (RMLO) to ensure the loan I created was Dodd-Frank compliant. Another friend referred me to a local real estate lawyer who prepared a note and mortgage, which is more valuable than a land contract. LESSON LEARNED #5
LATEAUGUSTTO OCTOBER, 2016
The NOD worked, and the borrowers finally responded to us. The servicing company did well in their role as liaison and my company offered the borrowers several modification options. The borrowers never made a payment and we moved forward with eviction. Note: It is often more profitable for a note investor to reinstate or modify a mortgage note on a nonperforming asset than foreclose on the asset. If the borrower is unable or unwilling to work with you, however, it is to your advantage to start legal proceedings.
NOVEMBER 1, 2016
The borrowers agreed to leave the house by the first of November, and I arranged for someone to inspect the house and change the locks at that time. However, the borrowers did not leave as agreed despite the signed legal agreement. We took further legal action.
NOVEMBER 16, 2016
We took possession of the house.
NOVEMBER 19, 2016
We saw the inside of the house for the first time.
NOVEMBER 19 - DECEMBER 2016
Preparing a seller finance note is an open-ended concept with many options. I used my network to help design the most valuable note. I chose the best applicant who would be an owner- occupant with a young family. He was able to put 8 percent down and had the skills to perform the needed house repairs. The house was very close to his family. His total principle, interest, taxes, and insurance (PITI) payment was approximately $150 less per month than what it would be to rent so this was a good financial opportunity for him. I offered a 20-year mortgage, which was attractive to him and makes the note more valuable as the investor will be repaid faster. We agreed on an 8
percent interest rate. All these factors combined to make for a good seller financed note. If I keep the note long enough, I will make money on it due to interest earned. Also, the bor- rower has expressed interest in paying the loan off early, which would increase my return. I have other options as well. First, I can leverage the borrower’s good pay- ment history by selling all or part of the note to recoup my money. Alternatively, I could keep the note but take out a loan against it, also known as hypothecation. Although the original note was a bust, I was able to maneuver the situation, increase my skills as a note investor and end up with a note that I consider a success (I’ll still make a profit!).
I see this as a learning experience that ultimately made me a much better note investor and business owner. Now that I have been doing this for a few years, my knowledge and experience level have increased tremendously. Many times, you learn more from your mistakes than your successes. And that’s something we can all learn from. •
We listed the house “as-is.” We had one showing.
We worked, with diminishing results, with a contractor to get the house fixed up for a retail sale. On July 2, 2017, I fired the contractor. JANUARY - JULY2, 2017 I listed the house myself on Craigslist and Facebook, to great interest and about 10 showings, and seller-financed it to a buyer at 8 percent interest. Over time, I will recoup my losses through the monthly payments, or I can sell the note. The buyer could also pay off the note early, which would also be to my financial benefit. JANUARY2018
Bill Griesmer is the Managing Member of Stonegate Capital, which buys and sells performing and distressed notes. He may be reached at firstname.lastname@example.org
This material has been prepared for informational pur- poses only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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