Austin Low Balance Note Deal Case Study - 100% ROI

Foreign this is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property For Panties on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now here's your host CEO of We Close Nodes, Scott Carson Hey Real estate investors, this is Scott Carson. I'm known across the country as the Note Guy and I've been an active note investor focused primarily on the niche of non performing notes, distressed mortgage notes on residential commercial properties for almost 20 years now. My company is we close notes.com and I know there's a lot of different things when it comes to the note world. Are you buying performing notes? Are you buying owner finance notes? Are you buying institutional debt? Like I would focus on Are you buying first seconds contract for each There's a lot of questions and it can be very confusing about what you can or cannot do. So one of the great things that we've hosted for the last couple of years that we do on just about a regular monthly basis is we host our one day class called Note Weekend. If you go to noteweekend.com you can register for our free three and a half hour class. We'll talk to you and share with you how you find fun and flip non performing notes. And yes, you can buy non performing notes from banks, hedge funds and a variety of different hard money lenders out there for your own portfolio. No, you don't have to have millions of dollars to dive into the non performing note game. We've got students that have bought plenty of deals with 2530 grand getting their ball rolling using their self directed IRA who are tired of dealing with toilets, tennis trash desks, tired of battling contractors and GCs to get properties rehabbed. We all know the market is changing and while it may not be like 2008, 9 and 10 again, it we do see a lot of distressed debt out there on both the residential and the commercial side. So if you're thinking about diving into the note game, becoming a note investor, a lean lord as you'd like to say, versus the landlord. Or you just want to figure out what it is about the sexy side of real estate in the note space. Well, check it out. Noteweekend.com doesn't cost you anything. We host it live usually the first or second Saturday of each month. You can go today. Register at the website noteweeking.com Register for the next live class we host. You'll get sent A replay to the previous class so you can start learning about the note business today. No questions asked, no credit card needed. This is a great way for you to dip your toes in the water and see if it's warm because I guarantee going through art three one day class, you want to dive into the deep end and become a note investor. So check it out noteweekend.com you can also go to our website. We close notes.com. check out our podcast, check out our YouTube number one YouTube channel. We are here to help support you. Whether you're experienced investor or you're brand new investing Note weekend is a great place for you to get the ball rolling. People often say we cover more in our three hour class than most people cover in their three day class. So check it out. Love to have you be part of our note family but get signed up today@noteweekend.com thanks and have a great day. Good morning, good afternoon and good evening. Hey. Welcome to this episode of the Note Clip show. As I, Scott Carson, excited to be here today. Today's episode, I want to talk about a low balance note case study. This is actually a deal that came across my desk. Oh, I guess it would have been Tuesday of last week, Monday, Tuesday of last week. And no, it would have been Thursday of last week actually. So kind of something that's relatively new on the desk now. I get a list of notes in from a California hedge fund. It actually had about 20 notes in Texas, some in Houston, some in the Dallas area, some down in San Antonio, and one here in Austin. And I was like, oh, let's look at this real fast. And so I wanted to go through this deal because it's a small balance note on a higher valued property. Okay. But if when I looked at it, I almost initially kicked it to the curb and didn't look at it because it's like, oh, what I saw online. Okay, I'll go this in a second. But this is something that you guys, I bring it up because sometimes we get in the habit of looking at specific things and we miss little, like diamonds. Okay. Note investing. I, you know, I make the joke that we kind of live on crumbs. We live on the crumbs of the big funds, right? They don't like these lower balance stuff. Sometimes it's uglier stuff. They're in the bigger pools, the cleaner stuff, and that's fine. But there's plenty of money to be made in the crumbs. And this is a crumb story. Okay. This is kind of a Crumb story. Not a crummy story, but a crumb story. And so I was sitting here, I, I got the list and reached out for pricing and they came back with pricing. The fund did. Oh, it was late Friday, like Friday. Right before the end of the day, I was like, oh, okay, well maybe I'll drive by it on Saturday. Texas is playing at 3 o'. Clock. I want to be home to watch that game. The first SEC game. Yes. Hook them horns. And so I was sitting here Saturday and I was like, well, I thought I'd drive down San Antonio, look at a couple of properties because they were nice looking properties. When I looked at this asset, it was a little uglier property. Okay. So I said, well, it's in Austin. What's the heck? What's it gonna hurt? It's a. Our trip basically 30 minutes down South Austin, 30 minutes back. It actually was about an hour and a half, two hours. I got another taping with another Austin asset even further south. Okay. We won't go into that one, but this one I thought was the most valuable one to go to as a teaching aspect for you guys out there. And it's always good if you have something in your neighborhood, go out, drive by it. Not everything online is going to reflect the true deal. And you may pick up things that you miss along the way by just guarding, you know, just evaluating yourself by what's on truly or Google or Zillow, stuff like that. In a lot of cases people miss on these note deals, they're not on prop stream or things like that. So I just said, okay, let's go take a look. So this asset, I googled the address and this is what it looked like. I'm like, oh, it looks like it could need, it could use some work. Ugly ass truck. It's in an okay neighborhood. It's in a par neighborhood. Okay. I mean it's an older neighborhood off of 290 here in town, which is basically midway, not all the way south to the airport. Now I live North Austin. It's on the kind of the west side. Sorry. It's on the east side of Austin, not too far from the toll road on the loop. But I was like, when I looked at the neighborhood, it was an okay neighborhood. That give you some ideas? This is when I drove by the property. This is what it looked like. Okay. Same truck is still there, right? Need some work. The garage you can't really see on this photo because of the SUV there, but it was kind of looked like it was kind of Kicked in a little bit. It wasn't closing all the way. It looked like the garage was full of junk. I'm like, okay, well, so here's the numbers. When I got the numbers, when I started looking at, here's what I came across. So it's a three bedroom, two bath, 2100 square foot house. It's a little bit bigger than the neighborhood houses. It was built in 1974. Okay. It's owner occupied. It's a first lien. Okay, Unpaid balance. Okay. Unpaid principal balance is at 49, 3 62. The payoff is at 50,238. So they're about 1,000 behind. Okay. The AVM, the automated valuation model. The online value that the bank had on their spreadsheet was499. Now when I saw that, I knew they were smoking some of that California wheat. There's no way this Property is worth 499. I don't know who told them that. Not even an ARV of 499. Because the average homes around the area are in that 300,000 range. Okay. 280 to 320 may be the best, but no way at 499. Especially not in its current condition. Okay, now it's got a 3.75 interest rate. It matures in 2033. So another nine years on the mortgage. And the P and I payment is 531Amonth. The taxes are about 126Amonth is what the spreadsheet said. I think it was a little bit off. Okay. I think that's because the taxes, I think on this a little bit higher. I forgot to check taxes. But anyway, so it's behind. The guy's behind by a few months. Okay. His next due is February 2024. He did make a payment in March that went to January's payment, but he's more behind. So his payoff is a little bit higher than 50. Okay. Six months behind. The lender has had an attorney. Notice of intent to foreclose has been issued. The bank wants roughly 80% of the legal balances, which is 40,190 is what they think it is of their number. I was like, okay, so Basically it's a $10,000 discount, give or take a few bucks. Now it's actually a little bit more than that because there's a few months more behind. But it's a Texas foreclosure. Here in Texas, remember, we do things fast. Fast foreclosure, fast highways, fast executions. If a notice of a tent has Already been issued then really, the foreclosure could take place in the next 30 days. Not this coming Tuesday. Maybe it could. This Tuesday, that's tomorrow. Because the first Tuesday of the month is when the foreclosures take place. Maybe they're closing by tomorrow. I don't know. Maybe not. Maybe it goes the next month. I don't know. Based on what the bank told me, it didn't give me the date of foreclosure on this thing yet, so I would assume it's going to be next month. Based on them soon. They're not. Okay, what else do we find? Well, if you were to. If it was to foreclose in 90 days, you make basically $10,000 in 90 days, give or take a little bit. You know, give it time for the check to be issued. If it does, if it isn't going to go to foreclosure next, you know, on Tuesday, it's next month. So maybe you're making in 60 days. But it's basically, if you're making $10,000 on a $40,000 investment, that's a 25% return on investment. I don't know why I have an A in there. Big clunky sausage fingers. Now, if you annualize that, that's 100% annual ROI. That's pretty stinking good for 40 grand, right? Right. Like I said, I drove by on Saturday and I had to stop and take a photo because guess what was in the. In the front yard? A listing. That's right. A realtor sign was shoved in the front yard. And I immediately, as I turned around, took a few photos. I avoided the big block party that was going on down the street. I guess somebody had died because everybody was wearing black. And so I picked up the phone and called the agent. I text. Well, I didn't call her. I texted her, hey, I'm calling about the property at blank blank blank. I didn't get a response. Back on Saturday, I was like, okay. So I looked online, and lo and behold, it's listed online on Zillow, which I didn't see on Friday, which is weird because I looked at this thing on Friday and Thursday. I didn't see anything listing Bill. Lo and behold, magically, it popped up Saturday afternoon. And see, that had been listed basically for 11 days. Okay. And it's a pending offer at 220. Wasn't listed at 220. It said pending. It's like, oh, this is interesting. So maybe it's going to sell fast. Maybe it would, because it Needs some work. You know, I could just tell, you know, if it hadn't been updated in 10, 15 years, you know, okay, it needs some work on the inside. Maybe it's worth 280. Maybe it's worth 300 after repair, but 220 is a bit of a stretch even at that, based on what I expect, the property needs inside. Okay, but, you know, maybe it's immaculate inside. I mean, it is about 500 square feet higher than any other property area. The guy's done some additions to it. I don't know if there's been, you know, those have been, you know, permitted improvements. Maybe they have. Maybe they have. I don't know. I mean, every. If it tells you the neighborhood, every. Every home had bars in the walls, okay, on the windows. So it's not the greatest of neighborhoods, but still, it's an up and coming neighborhood. It could be a good little rental property. Rents are somewhere between 1500 and 2000amonth in that neck of the woods. Okay, three bedroom, two bath. Like I said, 2000 plus square foot. So I was like, okay, great. So I texted her, no response back. While I was driving on Saturday. I'm like, okay. So then I reached out to her. Sunday, I'm sitting outside here, Sunday, I'm putting on a turkey breast in the barbecue to smoke it. I'm like, oh, I haven't heard back from that agent. Well, maybe she was busy Saturday getting ready for the UT game. It was Sunday. I said, it's after church. Let me text her. So I texted her again, said, hey, I'm an investor, cash buyer. I'm just calling to get some information, basically, is what I'm thinking. Maybe if I can get her to respond back, I see that it's pending. Maybe it asks a backup offering. She calls me immediately back. Oh, hi, you're calling a blah, blah, blah, blah, blah. Yes, I am. It's like, yeah, we have that. We have that one as pending. Am I pending? Oh, really? Wow, that's been on. Not been on the market long. She's like, no, no, but I do have another one in Bastrop. I was like, okay, but can you tell me about this one? Is it, you know, back to this one? Is when is it. Do you know when it's gonna close? Oh, it's gonna close quickly. Okay. Is it two weeks? Just a bit of an idea. Because I can follow back up with you on this one if it closes or doesn't close. No, no, it's gonna close quickly. It's cash offering. We expect this thing to close very quickly in two weeks when it's like, oh, great. Okay, great. Well, send me the information on the other property and Bastrop. I'll take a look at that. Okay. About 30 minutes later, she sends me a text message, sends me the address. I'm like, it's. It's a normal listing in Bastrop, but that's okay. We'll worry about that one later. But when I found out this was a fast closing, basically two week closing or less, I got even more excited because you think about that. If you're making 10k in 30 days, then now I'm gonna go through a foreclosure, not have to go to bidding, not wait for file, but if they actually pay you off, get the full payoff, it's 10k or more in 30 days. That's a pretty good day, right? That's a 25 and, you know, return there in your money. But in 30 days, that means it's annualized, a return of 300%. Okay. That's a pretty good day. Who wouldn't do that deal, right? Everybody says, oh, I would do that to you all day long. You would. But would you pull a tree if you had the 45 grand? Osrati said 40. Yeah, but you got to expect some things. Some people wouldn't do this deal because they're afraid they're taking the property back at auction, and then they'd be responsible for the rehab. Okay, now, there are other strategies involved with this. Yes. You could foreclose. I don't know if you got to bring another thousand bucks to the table, to the attorney, maybe. The attorney's fees are already paid in full. That's great. Take it. A foreclosure, hope it sells at auction. My opening bid would be the full legal payoff. Okay. If it is worth 299 or more, I'm gonna max that out and try to get somebody better. I bet somebody would pay more than that at auction. That's fine. I get my 50 grand or whatever and then the bar would get anything else in the second space. Could I work out with a bar? Could I approach the bar and say, hey, instead of foreclosing, let's give you cash for keys. You're looking to obviously sell it at 220. You owe about 50 gram, means you're gonna make them at 170, take your commissions out of there, you know. Can I give you a hundred grand cash to walk? Why would I do that? Well, because if I wanted to own the property and I Think it could be worth 300? It would make sense to pay that borrower 100. So I'm coming to the table to 150, roughly 50 for the note purchase, 100 to the borrower to walk. Okay. Under to the bar to walk. I mean. Oh, you know, that would, you know, be done. Don't worry about listing the property. We'll take it off, remove it, that kind of stuff like that. I could partner with the bar. Some people have partnered with borrowers and stress to, okay, let's partner together. We'll fix it up, pay off the mortgage, pay off my rehab costs and split the profits after closing. And you can still live here. I wouldn't necessarily like to do that, but I have some people have done that before. Okay, great. Could you, depending on how old the borrower is, could you do a reverse mortgage? Yeah, you could do a reverse mortgage and help them. If they're old enough to cash out of the property, move them. But I'd be willing to bet the fact that they're listing it for the 220 when the comps near a higher. If it's a, you know, it's a good. Because is they're wanting to cash out of this deal and move on. They don't have the money to repair it. Trying to get as much as they can and move on. And that's. That's the route. So that's the thing to keep in mind there. Now, the moral of the story that I want you guys to take away from this is it pays to drive by assets. Sometimes it does. I mean, yes, if you're an area and you're investing in other parts of the country, you can't always drive by the assets. I get it. I mean, my buddy Don, he flew to Michigan to buy taxi. He drove by about probably 50 to 100 properties in Detroit until he said a little. That's fine. It's worth it. Okay. What else was I doing on a Saturday? Well, I got all that mileage written off when I drove to South Austin, right off my taxes, I got to know the neighborhood. I was like, oh, is this a good property? Great. Is it not a good property? Okay. You know, I saw that. It was a listing sign out there. May I have a lead on another property? Yeah, I may have another lead on another property. Great. The important thing is don't let specific things like, if I lived in California, I wouldn't try to buy this property and try to do that real fast because you're way out of state. I don't Think doing an out of state rehab is smart if you've never done it before? Okay. Would it make sense, though, if it is going to be a fast foreclosure that you expect that it would still make sense that. Yeah, it could. You just got to understand, would I bring in somebody else's money on the deal? Probably not. Okay, probably not. Yeah. Could you go and give a guy five grand on a $40,000 investment and if it doesn't in 30 days and you split the profits? Yeah, you could do that. It's getting kind of skinny, but there's still some feasibility to that. I think it's the best deal is just taking down this with your own money and then, you know, buying it at 40 and either selling an auction at 50 and some change or, you know, trying to work with a borrower if you've got the extra cap. Because here's one thing. If the bar did a deed in loot to you and you own the property at that point, you could go and get a hard money loan and cash them out that way. All right, cash them out that way or cash them out and having my husband's money get paid after you sell the property. That's one thing you could do. Say, I'll give you 100 grand. Let's give. I'll give you 5 grand for moving right now. Let's get you out. Let me finance this with hard money. After I get a deed lieu from you, it's reo. At that point, you get a hard money lender to find you the rehab cost, and then you pay the investor his profit after it's listed and sold. Now, of course, you want to hold on the asset as a different story. Then you get. You got to refinance them out. But that's. There's some different ways to make this deal work. You know what I mean, ladies and gentlemen, Evaluate every extra strategy. Looking for signs. I mean, it's not, like I said, it's not the greatest neighborhoods, but not by far the worst one there. It's a house. Two streets. Two. Two actually, houses over. That needs some work. It needs more work in that neck of the woods. It looks like it's vacant. It's not listed. I just looked. But the online photos do not do that property justice. Somebody has not mowed the lawn. Probably six months on that, and it looks like it's vacant. So there's some opportunity. Yes, this is an older part of Austin, but there are some opportunities in these older houses. People are, you know, getting older. They're moving on. They're passing away. They're leaving the kids who can't fix them up. There's some opportunity there if you know what you're looking for. And while this isn't our stereotypical note deal, it's still a note deal that kind of makes sense if you're the right person and the right party for it. Okay, if you have any questions or comments, please feel those leave them below in the chat roll. I'll be glad to answer those questions or feel free to book a call with me@talkwithscottcarson.com that's talkwithscottcarson.com I'm always glad to help answer questions, go through things. If you've got a deal that you'd like to ask me review, feel free to reach out to me. I'd be glad to do it with you via Zoom. Break it down, even making a podcast episode if you're looking for so hopefully you learned something from this episode, but go out, take some action buddy, and we look forward to seeing the top. Bye everybody. Sam.