Double Digits in Detroit - Performing Note Case Study

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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.

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. 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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 everybody. Hey, welcome to this episode of the Note Close show. As always, Scott Carson excited here to be with you guys today. Hopefully you all had a great weekend. It's Monday. We're gonna get a case study here really fast on a performing note. But I just wanted to say I like real estate investing, especially like note investing. Because when you have things that happen on a Monday like today, with the market kind of taking a tank investment companies, Wall street firms closing, trading to retail investors like you and me, it really tells you how rigged Wall street is. The stock market is rigged out there. And that's one of the things I'm very anti against me, yes, there's some things that are good, but most of the things, when you see things like happen today, like what happened years ago with the Gamestop and the Robin Hood aspect of them shutting down and stopping people from being able to trade it or buy it just as a shitty way of doing business. And that's, that's crappy. But today's episode, I want to talk about how you can make an 18 return on a performing note that interests you. And now you don't need to have millions of dollars to do this is a deal that's about $50,000. And we came across it from doing our normal research on Mondays and I thought it'd make a great deal. I think one of my students has already made an offer on it, which is great. But it gives you, it tells you the kind of opportunities that lie out there, that things aren't always rigged. Yes, I think Wall street is rigged. But if you're smart and educated and know where to look. You can find deals that return a double digit return to you. And so this is a deal that I actually was pretty excited about. That was a great case study to talk about. It's a performing note, a newly originated performing note from about four or five months ago. And it's got an interesting story, some things to watch out for. But I thought it was very interesting to go through based on the research that we pulled. But this is in the detro. No, I'm not going to disclose the address to you. We came across it, we dove into it, looked at it, did some research on the property and stuff like that. So it is a. It's a performing. It was just originated a few months back. But I want to go through where you might see the opportunity. And it's kind of an interesting tale of the tape that's going on. But it's a not a bad looking house. This is a picture off of the Redfield listing from a couple months ago. It's not the biggest house, but it's kind of very kind of cookie cutter small, three bedroom, one and a half house. And so let's go through the details. It's in Detroit, Michigan. That's a better picture of what it looked like from what we pulled online. It's a three bedroom, one and a half bath, thousand square feet. It's on a 6,500 square foot lot, give or take a few feet, a little bit over 6,500. It was built back in 1945, obviously has been updated since then. We didn't get any into interior photos, but that's okay. You're buying the note, somebody's living in it. Somebody has bought this property on owner financing and the holder of the note is looking to sell the note. And it sold in February of this year. So it's now August. Sold six months ago. No, I'm sorry, yeah, six months ago for $75,000. Okay. And as we're doing this in August. All right, August, that's what it is, the property. When you drop this property into Rentometer to take a look@arentometer.com, it pops up at basically around 1299 is the median. Rents get a little bit higher. So 1100 to $1300 a month in rent rates for you. It sold. Here's the story behind the story. When you look at a property, don't just look at what it sold for recently. Okay. And it says it sold for 75,000. But when I went and looked at the history and that's what's great about Zillow, hopefully they stay in business is you start looking at the history, it'll start telling you the picture. So originally going back to last year, in November it sold for 40,000. 5, 65. Okay. It was immediately relisted in January of 2024 for 49. Okay. That's the funny thing, is who the note holders bought the property turn around and listed at 49,000. He removed it in April. I'm sorry, I apologize. That should be 2022. Sold November 2022 for 40,000, immediately listed at 49. Removed the listing in April and then relisted it at 60k in December. I've got it off a little bit. So eight months of trying to, you know, literally about a year trying to sell it. Okay. At 49 or greater above what he paid for in November of 2022. So he realisted it on December of last year at 60k traditional sale. Right. Well, how did we get it to 75k? That's a three month difference. How to go by 15k? So what happened is this guy bought the house at 40, he turned around, tried to relist it at 49,000, 50,000, couldn't get it, dropped it down to like 47, 48. Took it off the market for a little while. In April he took off the market, relisted it in December. I don't know what he did with it, whether he updated it or rented it out. I don't know what he did, didn't tell us. Okay. I couldn't find that information, but tried to sell it for 60 again, that didn't happen. But then he got a buyer to buy this property. Now what happened? It was a contract for Dean. Remember it was listed for 60 in December of last year. He creates a contract for deed, finds this buyer, buyer comes and wants to buy with owner financing. It's interesting. And so they did an under finance contract for deed. It's not a 30 year mortgage. Basically it was an 84 month. That means seven years at 8.5%. And the guy financed it at 75,000. Right. The buyer bought it from him at 75,000. Okay. Brought 7K down. And so the seller of the property or the guy that bought for 40 basically was carrying a first lien at $68,000. Now the way they structured this, he structured it knowing that he's going to take a discount to sell the note. I'm going to sell the property above value or value what I could sell it for since I'm offering owner Financing, I'm going to chunk down, carry financing the rest and sell the note off. And that's exactly what it looks like. The P and I payment on that $68,000 first lien is 1 is 1100 bucks. It's a little bit below market rents. 2, $300 below market rents. 1100 is just P and I. There's no taxes or insurance added to that. So that's separate. So far, four payments have been made because the loan closed four months. Four months ago. So as of time that we're doing this, four payments have been collected. I think the fifth one is due any day or has been paid any day. So the UPB is roughly at 67,000. Some change. The seller has listed this note for sale or wants $51,000 for it. Now they are carrying a note for basically just under just over 67,000. They're trying to sell it at 51, selling at a $16,000 discount. Now, the old listing back when this property was early listed for 60, says it needs some TLC, small TLC, but it's a glowing listing. Not a lot. I wish there's more photos to show that. We searched for the property from our photos, couldn't find it. But this is a current one taken like, okay, it doesn't look too bad if somebody's living in it and somebody's making payment on it. They probably updated it to get rent ready. Okay. The property lies just south of eight Mile Road. So it's not the greatest of areas, but it's also not the worst of areas. The neighborhood looks pretty nice when you look at the Google maps. All right, so let's go back. He bought this note for 40,000, tried to sell it for 49, couldn't do it. Tried to sell it for 60, couldn't sell it. Traditionally got somebody interested to come in and buy from him. On owner financing did a contract for deed at 75. The guy brought 7 guys. Gal brought 7k down. He carrying 68,000 for 7 years now trying to sell the note at 51. So let's talk about what the seller is going to make out because we kind of have the numbers behind the numbers. Wouldn't you agree, ladies and gentlemen? Right, so the. The guy that owns the contract for deed right now, guy that owner finance, doesn't own the property, but the guy that holds the contract for D, he's basically the lender. So he purchases at 40,565. Okay. Selling the note at 51,000. That's basically what he's selling the note at. Okay, there's more owed that than 51. But he's willing, he's accept 51,000. That's a $10,435,000 profit on the note sale that he's held that property for about a year. Okay, that's not a bad return. That's about a 25% cash and cash return. But there's more to this, right? What else have this guy collected? Well, he obviously got a down payment for 7k from the buyer who buy this, the borrower on the contract for deed. And he's also, as of the time that we pulled the information, the time from the spreadsheet, it shows four payments have been made. There's still basically 80 payments or 79 payments left to make. So he's collected four payments of 1100 bucks at least, probably five, but we'll just say four at 4400 bucks in that profit going in. Okay, so you add all that up 10, 4, 3, 5 in the note sale, plus $7,000 in the down payment. Now some of that, it's probably been removed because of closing costs and things like that. I don't know those numbers, but we're just saying, let's say GROSS on this, plus $4,400 a monthly payment so far, that's 21,835 in gross profits. Okay, that's not too bad. Right now that's presuming he used his own money:40,005,65 to buy the buy the property original back in the day. If that's the case, then he's. If he sells this note by November and doesn't collect another dime, that's about a 53.8% cash and cash return. 21,000 over 40,000. That's understand that 40, that's 53, 53.8. It gets four more payments. Three more payments, that's going to be another 4,400 bucks. That's another substantial. He could potentially be looking at making another 10, 15 on this deal for closing costs and stuff. Right, because that does not include three more payments. He sells his August, September, October, November. Okay, three to four more payments. That's not included in this. But if he sells it as is, doesn't collect any more dimes, that's a pretty good cash and cash return for somebody who's basically bought a property and flipped it in about a year. Right. Flipped it on owner financing, selling it up if he gets 51 for it. Now, there are some flags about this. Is this a deal for you and these are things that you should always, always, always look at. Okay? It's important thing. And these are what think why you look back at the history of a deal now, if you're thinking about this, what pops up as red flags? Well, that is a less than one year season of. That's the first thing for me. While Zillow values the home at 77,500 based on recent comps, what concerns me is what? Well, he couldn't sell it for 60 traditionally a year ago, and now it's right. You can buy the note at 51,000 as is Guy, probably take a little bit less. So if you're buying the note at 51 based off the $77,500 Zillow value, you're technically buying that at 66.23% of fair market value. If you compare that to the 67,000 owed on the unpaid principal balance, you're buying at 75, 0.7% of UPB, which buying a performing note at 80 cents or less of UPV is not bad. That's kind of normal, right? The thing that concerns me is seasoning. How well is the packet underwritten? You know the contract for deed, the financials of the borrower, Is it service with a third party servicer? Basically though, the thing that does concern me is that if you buy it at 51, you're technically buying at 85% of the listed price as of December last year. Okay, December of last year they listed that thing at roughly that 50,049 pounds. Oh no, I'm sorry, at the 60. 60 grand. Sorry. Okay. Now based on if you buy it at 51 current cash flow, you're gonna see about an 18 give or take ROI. Not bad at all. Not shabby. That's a deal for days off of that. But you gotta be careful on a couple of things. The first thing is it's a contract for deed and in Michigan which works. This works your favor buying contract for deeds in Michigan. It's not a foreclosure process, it's a eviction process. Providing that the borrower did not put more than 25% down at the time of the purchase. They put 7k down. That's less than the 10k that was financed or basically sales price of 75 at that point. So no less than 25%. This is an eviction in Michigan, which is pretty relatively quick. 30 to 60 days. If it turns non performing, that works in your favor, potentially moving into an asset. At worst, worst case, 60,000 or 77,000 with the markets are okay. The thing that does concern me is the landlord. The borrower on this is basically breaking even right now. I mean if it's 1100amonth payment and median rents are somewhere between 13 and 1400, I'm not making a lot of money. So a ball. If the ball the renter doesn't stop, doesn't pay, it's a chance that the note can default. Okay. I don't like that. If there's a tenant in place, I'd offer less than the 51. And that's my personal opinion. I think if you look at these numbers, it would probably take less if I can close quickly. If everything looks good, I'm still going to pull an O and E report, ownership and encumbrance report to take a look at it. Making sure it's clear title up to the point that the contract for deed was created in the old listing. This is. They were willing to give a warranty deed. So they hopefully cleared up the title. Anything outstanding there, that's a good thing. Here's the thing. Could you buy this note and flip the note and make some quick profit? Of course you're buying it an 18% return at 51. You could potentially turn around and you know, sell that note at a 12% return. Get 55, 60,000 for it and sell it to somebody at a 12 return. That's not a bad day. Make put 5 or 10 grand in your pocket wholesaling it right now, you know, 5K to somebody else. You know, you could buy with cheap opm other people's money who want a 1012 arbitrage it make the difference in the cash flow monthly. If you're borrowing, you know, let's just say if you're borrowing 51k times 0.1, divide that by 12 months. Basically you're paying your investor 425amonth while 1100 is coming in. You know, that's a, that's not. That's a 675,675 profit monthly. Thing about that is you definitely would want to sell this note off before the UPB gets down to where you borrow that 51,000. You have a few years, probably gonna have, you know, two, three years of cash flow on that and then a either just assign the note over to your investor or sell it off and, and walk away. Okay. The risk to watch out for this is obviously the number one underlying factor is what's the true value of the property. Just because they sold it on owner financing at 75k. A few months ago does not mean the property's worth 75k. I think the property is more worth 60. Maybe they've done some upgrades to it. Maybe the comps have gone up in this area. Who knows. Don't know that until we actually talk to an agent. Okay. I don't know what kind of work the bars put into it obviously if they are getting the 13, 1400 dollars but they've put some upgrades into it or cleaned it up and maybe that's where the new value the property. Those are things that you want to find out. Take a look at it. Of course always double check the collateral, the title work, look at the contract for D, make sure it's written. Making sure you have the right to foreclose. Make sure everything is clean on that. That's the biggest thing out there and of course the most important thing also besides the values that the borrower is not sorry that the guy that is holding this contract for deed is not self servicing. I do not want them to self service. I need that to be with a third party service. If it is they're self servicing. This I would be looking to read like I said under, under bid that 51,048, 47, 45 if that's the case now of course if I buy it at 45 I'm probably going to see a much higher yield. But that's the risk I'm taking for buying a newly seasoned note if those things don't pan out. Now if those, all those things pan out the value comes back at 77. It's clean collateral file he's using like an FCI or a massive management or an allied servicing and can show payment history. Great. The closer to 51 I'll get it but the bar said he was willing to do it and look they've got a chunk of money there. If they sell it at the 51, guess what? They're making a nice chunk of money. They're, you know nothing against people making money. 18 is not a bad day either for your IRA. Especially on a day like today where the market's down 15, 20%. Okay, but this is what we do. If you're listening to this, make sure you click on the link in this description. Go over and watch the full breakdown of the numbers. Hopefully I explained it easy enough for you. You know it's not a. This is not a retire early type of deal but it is a nice deal to put into your IRA for a period of years. Yes, the borrower is going to pay this loan off in less than seven years. And yes, you can make a 20% return, potentially give or take a little bit. But anything over 12 is not a bad day to have that return for seven, eight years, nine years maybe, who knows what's going to happen. Or sooner maybe they pay you off, they refinance out of the eight and a half percent of rates do drop down below that. But it's a, it's not a bad day, not a bad deal. If you'd like to learn how to do this, go to weclosenotes.com that's my main website. We close notes.com that's where you'll find our podcast episode and all our different things. You know my gift to you guys is we have a one day class called noteweekend.com if you go to noteweekend.com Sign up for it, no credit card required. You'll have access to our one day class which is on the basics of note investing. But really the nuts and bolts of what you want to learn to learn how to do this is really you want to go through the note Buying for Dummies workshop. That's a three day class. One day on finding deals, one day on funding deals. One day I'm making money. And the different exit strategies, how to structure these types of deals. We're the best at what we do. Yes, the recordings are included. Normally it's 997. If you get signed up, it's a 50 discount for 495 or 498.50. That's the cheapest out there and the biggest bang for your buck. And our next class is tentatively scheduled for September 13th, 14th and 15th. That's a Friday, Saturday, Sunday. That's online so you don't have to jump on a plane, go run a hotel. You can learn from the comfort of your own home or office from your pajamas or from your desk or from your couch or your office. So encourage you to do that. Go to Note buying for dummies.com get signed up for it. We're going to be featuring more and more deals like this. We'll probably do four or five over the next two weeks on this type of deals like this that come across it and we want you to learn now is an opportunity to take advantage what's going on market only residential. But the commercial stuff, it's the same premise. Buy cheap, buy at a discount, reinstate buy the buy that debt payments, you know, whatever that is and put money in your pocket at above average returns. But you know that's the steal on this one. Everybody you know, go out, take some action, go buy some notes. Reach out to me, talkw scottcarson.com if you have any questions, or click on the link below in the description. And let's see you guys at the top. Bye.