Questions for Mr. Behle - Posted by JTSHEP123

Posted by John Behle on October 21, 1998 at 13:29:16:

I appreciate the emphasis you added. I just want to echo that. If someone is hyper-anxious about getting a deal closed, that can mean they are out to rip you off as often as it means they just need the money now.

There is due-diligence that absolutely must be followed and some that can happen later. I can close some deals very fast because I can do the due-diligence and not have to wait for a title company, appraiser or funding source. BUT - that isn’t the case for everyone.

For example, if I were to close without an appraisal, it is because I did my own. If I close without title insurance, it is because I checked the title out and am “self insuring” (which I don’t recommend for a novice).

There are things like obtaining a credit report that might not need to slow the process - to the point of losing the note. One example I used in the other post included checking the title myself, getting a copy of the title insurance from the sale, doing a drive by, checking comps in the MLS, calling to verify loan balances on two underlying loans and verifying that a previous third loan had been paid off.

The minimal risks I took on the deal were:

  1. Relying on my own comps to determine value. With my background this wasn’t much of a risk.

  2. Closing without title insurance. This would be a huge risk to most, but I know titles better than most title company researchers and 99.9% of attornies.

  3. Closing without a release of lien (satisfaction of mortgage) on a previous loan that had been paid off. To me the risk was minimal because: A) I could tell by the loan papers that it had amortized B) I reviewed correspondence between the benficiary and the payor confirming the payoff C) The title company that closed the deal was doing collections on both the second and the third and verified the figures d) I talked with the previous beneficiary by phone and was confident there would be no problem with him signing the release. If he would have refused, a quiet title action could have cleared it cheaply.

I invest in paper because there are very, very few risks if the due-diligence is done properly. I advocate paper investment because I believe with proper instruction it is as easy, simple and safe as real estate investment. I could also demonstrate many ways that it is safer.

I like to open paper buyers’ minds to look at possibilities, but never advocate cutting corners or taking un-due risks. There is always a balance in the education process of the extreme of fear and conservatism and the extreme of shoot first, aim later, don’t worry I’m invincible.

Each has massive risks. I’ve seen people get burned, hit the wall and be devastated by foolish risks. That’s why many times I say “hey, that’s illegal or dangerous.”

Others need to be aware of the risk of inactivity. I think the statistics are still true that:

Out of a hundred people, many don’t reach 65. At 65, 2 of the hundred will be wealthy. Another 3 will be “independent” - and all that means is they do not have to rely on others for their subsistence. Some are in almost poverty level.

The rest of the hundred people either didn’t make it or have to work or rely on others. The risk of being in that 95% may outweigh a few calculated risks in investing, because no matter how you do your due-diligence in notes or real estate, there still is some risk.

I think the greatest risk is in not trying, but I will be the first to say to pass on a deal or avoid a risk, even if it appears minimal. I think my best lessons have come from deals I should have passed on, deals that could have been more profitable and most of all, the ones that got away.

Questions for Mr. Behle - Posted by JTSHEP123

Posted by JTSHEP123 on October 20, 1998 at 14:23:29:

This opportunity has literally fallen into my lap: My real estate investing mentor has been flipping properties for close to 30 years by using mortgage brokers, however he is frustrated with the long timeframe and underwriting redtape that his mortgage brokers require. To make a long story short, I suggested that I note broker his deals via simultaneous closings since the timeframe of the big institutional note buyers seems to hubber around 30 days give or take and the redtape seems to be less. So we closed one with a bank in Mississippi and are near closing another with a funder in Florida. Being as though I have just started educating myself in paper and lack a lot of experiential knowledge in both paper and real estate investing, my question is would not a paper brokerline be very beneficial for our needs. Could not I create mortgages for his payors almost overnight and resale them too. He could easily do 20 - 50 per month I’d imagine if funds were readily available.
I have been in contact with one institution that provides broker lines of credit, thanks to the Papersource. As a real estate investor and paper expert what kind of advice could you give in terms of quicker closings, brokerlines of credit, combinations of real estate investing with paper, etc.
Also, I’m very glad to see your books and tapes are now available, I respect your opinion(s) already. Thanks in advance.

The Importance of Due Diligence - Posted by Ed Wachsman

Posted by Ed Wachsman on October 21, 1998 at 04:32:32:

Mr. Behle stated it but I feel it must be emphasized. THOROUGH due diligence is absolutely critical in these deals. There is a tendency when the time frames are short to cut corners. Always dangerous and potentially financially fatal. I, too, do deals very quickly on occasion. I’ve closed on property in under 24 hours and funded loans in about the same time frame. However, anytime someone comes to me and wants/needs it done that quickly red flags go up very quickly and I become super cautious. I’ll let large potential profits go by if I can’t check everything out to my complete statisfaction. I will greatly speed up my due diligence process but I NEVER circumvent or bypass elements of the process. You can be forced to eat some very expensive mistakes in this business if you are not careful and you can wipe out a lot of success with just one good sized failure. DO NOT LET YOUR LEVEL OF GREED OUTWEIGH YOUR GOOD SENSE AND JUDGMENT.

Re: Questions for Mr. Behle - Posted by John Behle

Posted by John Behle on October 20, 1998 at 19:47:30:

First National’s broker line would be an excellent resource. There is tremendous power in being able to fund immediately. Some of my very best deals have been funded in just an hour or two. In that time frame I can know whether a note is good or not, I may just be lacking a document or two for a complete package.

Example 1 - Call on Thursday night at 8 pm. If the note seller can have enough cash by 8:00 Monday morning he can buy the store he works at out of the bankruptcy. I did the due diligence and closed about 3 the next day. There were some title documents I still needed that I couldn’t get until Monday. No problem.

Example 2 - got a call at 8:30 on Monday morning. Property was going to sale on the first at 10:00. I did the due diligence, bought the second and third loans at an extreme discount, got a “Quit Claim Deed” from the owner, arranged the resale to the tenant - and then re-instated the first loan 60 seconds before the sale. Closed on the resale to the tenant later.

Example 3 - Note seller was leaving town. $42,500 first, 70% LTV, seasoned 2.5 years. The seller had other offers as high as $22,000. I purchased for $19,000 a few hours later. I handed them certified funds and recorded at the County Recorder’s office. As they drove off into the sunset forever, my brain went into “fear fry”. I knew I had done it all, but you always wonder anyway. Was a great note.

Example 4 - Mel called on Saturday afternoon and needed money by 10:00 Monday morning. We made a hard money loan of $5500 at 21% interest with 10 points. He got his money.

I could also detail ones that got away because I didn’t have ready funds at the time. It is one of the most powerful tools in the note industry. In addition to the “broker line” try to also develop some private investor sources that will fund quickly. The best of course is long term financing that can fund quickly.

What most people consider their investors - I consider a mailing list. To me an investor is someone I have verified has liquid funds, knows the basics of a note and is willing to write a blank check to do a deal quick. Consider that maybe a level 3 investor. Most are trying to do deals with level one investors.