Recently I was interviewed by Kevin Shortle about a note purchased in 2016. It is a great crystal ball into what is on the horizon with the thousands of non-performing loans in Q for the near future, most likely in early to mid 2021.
This case study will give you a great view into what can happen when a deal goes bad and you know how to handle it.
Recently I had the honor of being interviewed by Tom Olson of Good Success
In March of 2020 Capstone sent letters to 10 borowers to determine if offered a slight discount, would they be interested and able to pay of their mortage. 3 replied yes. They were thrilled. It was a win for the home owner–to own their home outright. It was a win for Capstone to recapture capital to redeploy for other opportunities. Kevin Shortle and I discuss this in the following short video
Our next NOTE INVESTORS FORUM Virtual Meetup is May 13th and you can register now!
They are informative and also help identify market opportunities along with solving challenges and avoiding key blind spots we will be facing!
AMERICA IS NOW OPEN FOR BUSINESS……NOW WHAT?
Special panel of seasoned note and real estate experts
What opportunities they see today, 3 months, 6 months, 12 months and beyond…
Purpose > Persistence > Success
- Imran Sohrab Amarcapital Washington, DC (from PHX)
Specializes in 2nds
- Richard Thornton American Note Capital Silicone Valley
- Michelle & Brian Winberry J6 Enterprise Group Kansas City
Note, fix/flips, wholesale and, and, and
- Allan Woodruff Black Pearl Funding, LLC Prescott, AZ
Fix/Flip, landlord, notes AZ and IN
To Your Success!
Capstone recently purchased several low balance Contract for Deeds and sold 3 small partials which were tagged “Partials For Beginners”. They were sold before all of the COVID-19 mess. This is a situation that evolved truly by accident. The variables were such a new investor could make that big decision to “jump in” and buy their first note without any real risk. Even with the uncertainities of COVID, the investors funds are relatively safe.
One may ask, “Why minimal Risk?”
They all had great basic analytics. Meaning, low Investment to Value(ITV)< 35% & low Loan to Value(LTV) <50%. All the loans had a great pay history–greater than 5 years with real negatives. The payors insurance was in place. They were professionally serviced. They all had a low investment entry point of less of than $11,500 and a partial amortization schedule of <46 months.
Normally a partial is only viable with a larger # of payments remaining –typically over a 100. In this case, the partials were viable due to the superior buying power of Capstone resulting in a winning combination for the partial buyer and Capstone.
I asked each investor why they chose to buy. To the person, it was the set up.
- Low dollar entry point
- Great deal analytics
- That I, a seasoned note investor would be protecting their interest as the “tail owner”
- This would be a learning opportunity for them to see 1st hand just how a professional note broker structures a partial transaction for free and still make money and get all the paperwork. No mentoring fees were asked for or required.
- Bottom line it was the 3 famous words in any sales transaction–the know, like and trust factor. Therefore, not just the deal but the deal maker.
Check out this short utube detailing the deal points and similiarities of each transaction.
Our 1st-VIRTUAL Note Investors Forum Meetup.
Host: Dave Franecki
Join us on Wednesday, March 25th; 11:30am-12:30pm PST. | AZ
- The impact of the Coronavirus On the Note & Real Estate Industry
- How have things Changed From January / March 2020
- Q&A: Buy, Sell OR Hold.
Guest Speaker: Howard Tenn
Join Zoom Meeting
Meeting ID: 697 196 717
The Next Note Investors Forum Meeting will be
Wednesday, November 6th 11:30am-1:30pm
La Famiglia Restaurant, SE corner of Dobson & Guadalupe, Mesa
TOPICS: Trends In The Note Industry
Highlights from the NoteExpo
Price $16.84 with online registration
$20.00 @ the door
Includes lunch, beverage, information and networking
EVENTBRITE TICKETS @
Factors Affecting the Value of Mortgage Notes
When you start the process of selling your mortgage note it’s important to keep in mind that how much a mortgage note sells for mostly comes down to risk. Typically, the less risk involved in the note, the greater its market value.
Value of Property
One of the first things a note-purchasing company looks at is the value of the property that serves as collateral on the note. The current market value of the residential or commercial real estate listed on the note can increase or decrease the note’s market value.
Keep in mind, the amount listed on the mortgage typically is not the same thing as the current value on the property, or the amount for which the property was last purchased. Real estate values can fluctuate over time. If you’re not sure of the current value of your property, online resources such as Zillow can provide a rough estimate. During the note-selling process, a more precise quote is given.
A factor which affects property value is the actual type of the property. Typically single family dwellings maintain higher values than other property types like condos or manufactured homes.
Equity from Buyer
The equity the real estate’s owner has in the property factors into the value of the note. This includes the amount of the down payment, as well as payments already received from the property owner.
When a payer has invested a significant portion of his or her own assets into the real estate, the payer has a vested interest in the real estate and is less likely to default on the loan. Thus, a mortgage note with a significant level of equity from the buyer presents a lower risk.
The more equity the homeowner has, the more money a note seller is typically able to get for the note.
Property Owner’s Credit Score
The mortgage note owner’s creditworthiness does not factor into the sale of the note, but the property owner’s creditworthiness does.
The higher the credit score of the property owner, the higher the value of the note. More creditworthiness in the owner means the person purchasing the payments is taking on less risk. Because the buyer of the note is assuming less risk, that money is passed on to the seller.
A low credit score does not automatically mean the note can’t be sold. Other factors such as payment history on the note, and the payer’s equity in the property, can help in cases where a low credit score hurts. Still, a lower score means more risk and thus degrades the note’s value.
Payment History on Note
Payment history on the note also determines how much a mortgage note is worth. This concept is often described as notes either being “performing,” meaning having regular payments, or “non-performing,” which means the payments have not been paid on time.
Being able to show a strong payment history from the property owner can make your mortgage note more valuable.Most private mortgages are not reported to credit bureaus, and so the payments do not influence the payer’s credit score. Thus, positive credit history on the mortgage note can help compensate for a payor having a weaker credit score.
Recourse vs. Nonrecourse
If the payer on the private mortgage is a corporate entity, trust or nonprofit, it helps to have an individual listed as the personal guarantee of the payer. By having a guarantee, it means the note has recourse in the event the entity, trust or nonprofit stops making payments on the loan.
The term “recourse” means the note has someone with whom recourse could be taken in the event the loan is defaulted upon. Though it does not bar it from being saleable, a nonrecourse note has significantly more risk, which degrades its value.
Interest rate and the length of a loan also help determine the value of the note. A higher interest rate and shorter loan term make for a more valuable note.
Other note terms, such as a rider on the mortgage affecting the term, can also affect its value. For instance, some private mortgage notes have a balloon rider. This type of rider lets smaller payments be made for a time, with one lump sum due at the end of the term. This would be instead of evenly distributing the amount due over a series of payments. Any rider affecting the payment schedule can affect the value of the note.