BEWARE: Low Balance Note Deals

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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.

Good morning, good afternoon, good evening everybody. Welcome to this episode of the no Closer Show. As always, Scott Carson. Excited to be here today. Today's episode, I want to get straight into it and I want to talk about small balance killers. All right? Now what I mean by this is when you get a list of notes in, it's very, very common if you're a brand new investor to take a look at what's in your account, right? If you've got 10 grand or 20 grand, that's what you're going to try to make an offering with. But you have to be very careful with this because sometimes these small balance notes can end up killing your IRA or killing what savings you have. And sometimes most of the time it's better to bid on a higher valued. Asking goes right cat raise capital. I just had a couple students and that's why I wanted to bring it up because I know I've talked about it before, but I just like to reiterate the stuff got a tape in where the seller actually had their strike prices. They actually had what they wanted to for these assets. These are all non performing. Some were small balance stuff and my students were like, oh, hey, there's a couple small balance on there. They want four grand. We got five grand in one account, we got six grand. Another count, there's no one for 4,500 bucks. And the assets on these one was valued at 50, the other one was valued at 100. Okay, that looks pretty good except for a couple of reasons. One, the legal balance on the first one that they could pay four grand for was only like 8,500 bucks. Okay. And it was in Ohio. Now both of these assets were in Ohio, which is a judicial foreclosure, takes about nine months to foreclose. The other one, again, small balance, it was like nine grand in total payoff and had the higher value of 100 grand. Now the that may not necessarily be the kicker, but both of these borrowers hadn't made payments in about six months. Okay. So it could be, when you first look at it, this could be a possibility to get the borrowers back on track. Right? Except. Aha. Except these are both construction. One was a construction loan, one was a line of credit and the payments on both these loan was only one was $29 a month and the other one's $58 a month. Very low P and I payments. Well, if you calculate if the borrower on the one brought the loan due, they made six months of payments and brought it together, it's only $348 basically made in a year divided by your 4,000 investments. Not a good. It's like an 8.7% cash and cash return. Not very good to tie up your money for extended period of time. Now, if you had to foreclose, guess What? You paying four grand plus the 3,000 plus dollars and it cost you to foreclose plus the servicing cost to foreclose. You're going to be losing money on the deal because the most you can make an offering on would be the legal balance at the foreclosure auction. That's your highest bid. You would. Now are you going to get out bid? Yeah. On an asset, it's worth $50,000. That looks decent because we looked at online photo look really good. You're going to get outbid most of the time when you're only owed like nine grand is a total payoff. It's worth 50. You're going to get outbid at the auction. So you look at what you paid for the, your legal costs, then the, you know, the cost of foreclose and then you got to pay back taxes too. You're not going to make any money on this deal. And so that's the thing. Be very careful when you're looking at these small bounces. I know it's like, oh, I could use my IRA to fund it. Yes, you could. But here's what you want to look at my formula and what I look for when I see a small balance like that. Now, yes, it's great. It's a $50,000 assets great of $100,000 asset. Okay? But the UPB is you're paying 50 cents on the dollar for the upb and so low you're paying too much, honestly. Okay? Because those low balances you still have cost to foreclose. You still got servicing costs or $90 a month. Especially look at the PNI payment, the principal and interest payment that are paid monthly. If your payment's below 250 bucks. If you're using OPM or even 150amonth, you're losing money. I honestly don't think you should waste your time on that stuff. There are better deals to Put your money to. You can save that four grand or five grand to cover an aha nugget when you foreclose, but use other people's money. This is one big thing that if you're scared of, you got to embrace the giving. Because you could, if they would have bought these deals because they were already approved, that they, you know, your deals are accepted and they're like, oh my God, what I do now? I'm like, well, you're going to have to cancel your offers by going back and say hi. My apology. But based on some further review, these deals do not match what our strategy is. Now, they should have known that knowing the low P and I payment to begin with. But I gotta give these folks a lot of credit. They took action. They made some offers they didn't understand. They just gone through a class. They made an offer on Saturday. So they weren't even through the rest of the class, the rest of the three days of class. And they didn't reach out to me before they make us moffers. So if you're going to make an offer, I'm going to tell you right now, ladies and gentlemen, don't make a dumb offer. Don't be prideful and let pride get in the way of you making the right offer. Because I've seen way too many people make offers thinking they know everything or being too frightful for ask for questions and they end up overbidding or they're bidding the wrong assets. You don't know what you don't know. So I'm giving you the out. I don't care who you've learned from. I don't care what guru you've taken or a class you have or haven't taken. But I'm going to tell you this, if you call me up and make an offer, you ain't taking any education. I'm going to tell you right now, take my class. No offense, you got to get educated. But I'm going to tell you why your deal is good or bad if it's a deal or a dud. So don't make a deal. Don't make an offer just to make an offer. Make sure you're making an offer that it's actually on a deal and not a dud. And that's the biggest thing, is make sure that what you're looking at, look at the whole information. Take the time to figure this out. If they did get reperforming, how many months behind are they? Maybe the six months of payments where, what type of return am I going to get? And then what money am I going to make if I have to take it to foreclosure? These are all relevant questions that you need to know before you make an offer and go from there. That's why you want to be this. Low balance stuff can be a deal killer for your ira, but they can also benefit stuff. If the the payment was higher, it would make sense. If the UPB was higher than 10 grand and you're paying 4 grand, those are numbers that you can start making something happen. Or if the P and I payment would be more than enough to cover your servicing, especially your non performance servicing costs, then it could be a decent deal. But those low, low balance stuff, you need to make a higher yield on it because your costs are going to eat up a lot of your profits initially. So keep that in mind. That's why I often think this makes sense for you to get rid of those low balance, those low below 25, 000 UPBS. Because the fact is if you're paying at a premium for those because the values way above paying 80 cents a dollar for that just doesn't make sense when it comes to the long term. You'll end up spending more money and fighting a lot of things to have happen on these deals that just aren't worth your time. Look at better valued assets, higher checks, higher returns and going from there. It's kind of like, you know, a lot of people that buy fur, I mean buy seconds, they like it because they can buy the low balance stuff and you can get higher returns but there's no, no guarantee making a higher return. Just because you make a five thousand dollar return with that's fifty bucks and mine's a five, I mean a fifteen return, I'm making five thousand. What would you really make? Make the five thousand. So keep that in mind. Low balance stuff can be good, but it also can be really, really bad that you don't want to dive into. So don't make it a bad deal. Don't bid on a dud. Let's bid on a deal for you. And feel free to reach out to me@talkwithscott carson.com I'm glad to spend time have you walk me through the deal. I'll ask you some numbers and I'll tell you hey, it makes sense or it doesn't make sense and we'll help you go from there because my goal is to get you to close notes and close on deals, not to buy duds and take somebody else's word that this is a deal just because it's a low purchase price. So don't do that. Let's get you taking action. And, hey, great for making offers, but make sure you're making the right type of offers and not just throwing spaghetti against the wall. All right, go out, take some action, buddy, and we'll see you at the top. By.