Total newbie with notes! Need help - Posted by Pete CA

Real Estate Investing Notes
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Posted by SolidReturns on June 17, 2009 at 21:41:03:

FHA will require that the seller owned the property for 6 months. That will hold up your transaction if you’re able to turn the property around faster.

Of course you can carry the paper, but think about the note you are creating. Would you buy it? And if so, how much would you want to discount it for? Off the top of my head, some things for a note that make it more desirable:

  1. Owner occupied.
  2. Good sized down payment.
  3. Good credit.
  4. Good history (you’ll have to “season” the note for 6 months+).
  5. Short term note (5-10 year balloon, etc.).
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Total newbie with notes! Need help - Posted by Pete CA

Posted by Pete CA on June 17, 2009 at 21:22:46:

Hi all,

I have about $50,000 in cash and I am considering buying a 3 bedroom house in San Bernardino, CA (yes it can be done, sometimes for less, and not need a lot of rehab…)

It’s bank owned and needs some work so it cant be financed. It’s worth about $100,000 fixed up. I’m thinking of paying cash, borrowing some money and labor from my parents (dad’s a contractor) to fix it up. My main goal would be sell it outright to an fha buyer or conventional buyer…but it’s in a neighborhood that is potentially unlendable because of the % of renters vs. owners so that’s out.

Can I sell it and carry the note, then sell the note? How much would I have to discount the note to sell it? Will the note buyer look at all the other bank owned homes that need a ton of work in the neighborhood and not want to buy my little fixed up house with a paying owner? If there are competing properties for 50-70K that need lots of work will I be able to resell my note once the house is fixed up?

thanks!! sorry for rambling.

Pete CA

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Re: Total newbie with notes! Need help - Posted by JAMES_CA

Posted by JAMES_CA on August 07, 2009 at 24:40:33:

City of San Bernardino is not a good place to invest right now imo. Sure prices are cheap but rent and quality of buyers are low too. Or you meant San Bern. country as a whole? Any particular reason?

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Conversion of asset to spendable money… - Posted by Rick, the Probate Guy

Posted by Rick, the Probate Guy on June 18, 2009 at 09:29:30:

Sure, you can work that play. However, don’t think that there’s much of a market for paper secured by inland empire property.

I’ve worked that area for more than two decades and yet I wasn’t paying enough attention when last year I foreclosed on two of my notes.

My 1st TD was in San Bern., about 1/2 mile north of airport. It’s a bit rough there. Had a $92K over 2007 appraisal of $225K. By the time I paid foreclosure costs, BK attorney, eviction costs, I had about $100K in it.

WHen I was ready to sell it, I decided to wholesale it because I didn’t want to put money into a tough area and become someone’s potential copper mine. After paying to trash it out, wholesale fees to my buddy ($3K) and escrow, I netted about $25K.

Ouch!

Anyway, even an old pro can be sorry he (or she) was asleep at the switch when making the loan.

So, if you have cash, what you’re really proposing to do is buy a property for $50K, put perhaps $10-20K to fix, then sell for $90-100K. There are buyers out there, and there are prospective tenants, but very few of either that have money or capacity to pay.

So step back and think this through. Your money is safely in your pocket right now. You want to buy something, add some value to it, and then sell the property to a weak buyer and carry the paper. Then you want to sell the paper to someone who’s willing to invest in notes in a notoriously difficult market. So, any notebuyer is going to discount the heck out of anything that they buy, because of LTV and safety and odds of defaulting. Plus, additional factors added in, such as longer to foreclose, etc.

It just doesn’t pencil out.

What you’re trying to do is enhance the value of your paper. Instead of starting with a dubious investment model, reverse engineer this and start with a model that people WANT to be in. INstead of creating the note, consider buying a note or partials at very low LTV’s at discount.

Why put your money into something that creates a problem for you? With cash, you’re the investor and in a position to solve problems.