EP NNA 116 - #NoteInvesting: A Step-By-Step Guide On Calculating Your Note Bids

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. Welcome to this episode of Note tonight in America, June 6, 2022. It is the dog days of summer kick in. We are expecting nine, 10 days straight of over 100 degree heat. So while it's hot outside, we cooling off inside of the Note Deal. So glad to have you everybody here. If this is your first time on Note Night in America, we are honored to have you. We've been hosting these webinars for golly, it's hard to believe. 12 plus years now, I believe. Yeah, since 2011. This is the 11th year. It seems like the 12th year, but going on that. But lots of great content. Make sure you check out the Note Night in America podcast. I'm a little behind of getting those episodes from the last few months up on there, but they'll be up. We host these every Monday night for the most part, unless I'm traveling or it's a holiday. Hopefully you all had a great Memorial Day weekend a week ago. You can always catch the videos either live on our YouTube channel or catch the replays the day after as well. All you gotta do is go to weclosenotes tv, click on that link, it'll take you directly to our channel and allow you to subscribe to our channel. But we encourage you to do that cause we're always dropping a lot of great content there. Not just Note Night in America, but we've been uploading Note Terms of the Days podcast episodes. I mean we've got a variety of things. So the Note Night American Podcast is on any of those major podcasting platforms, wherever you like to consume content. And then we also encourage you to check out the Note Closer show podcast, which is our main one. And then of course the Note Camp Podcast live as well. This is from last year's Note Camp convention. We do have another one upcoming here in the next few months, so stay tuned to that. Just plenty of opportunities for you to learn about the Note business. We're glad to be the 50 watt mega blowtorch, proud to be the largest YouTube channel when it comes to delivering Note content for you. Number of subscribers, number of views, number of watch views every day subscribers, all that good stuff. So just honored to be here. So Lots of great stuff to cover tonight for you. If you want to, you can always connect to me on LinkedIn. If we're not connected LinkedIn, do so with me because you'll see us posting stuff on there as well. And we posted a link to our slides tonight on LinkedIn, also on our Twitter, something that you'll definitely want to grab. So if you're not connected on LinkedIn, pull out your smartphone right now, open up the photo thing, scan that code and connect with me. If not, you can always go over to LinkedIn, look for one Scott Carson and see me on there. Scott the Note Guy Carson on Linked as well. So encourage you to join with me there. Just lots of great stuff there. But anyway, tonight would be we had over 520 registers last time I checked before going and I still see some people join us live here as they're opening their email, which is great, but this has been a hot topic. I get a lot of people that reach out to me. Scott, I don't know how to bid on a note. I'm not sure where to begin and what to look for. I'm scared of my own shadow when it comes to bidding. And I'm going to tell you right now, ladies and gentlemen, this webinar is going to help you. Yes, it will help you, but ultimately you know what you have to do. You have to submit bids. Every seller is different. Every asset is unique. Some sellers are smoking a lot of crack, some are motivated to sell, some are in between there, some are looking to get out of the business. Every seller of notes is completely different and you have to know what their hot buttons are. Sometimes brokers have a preconceived notion of bidding amounts or bidding percentages and that's why they're there. You have some websites out there that are just stupid because they don't have a lot, not some of the time, major stuff, overpriced. That's why we don't shop there. We go direct to sellers. But tonight is all about helping you kind of, as I say, walk that minefield. What to look for, how to avoid the mines, how to not step on your toe or blow your leg off when you're looking at performing non performing contract for D's owner finance notes. What are you looking for? How do you determine that stuff and what do you look at? And I guarantee you tonight you're probably going to want to grab my slides. If you haven't, you're probably going to want to grab because I included some great formula slides that you can download my slides and actually put five or six slides in one of the stair step method five formula slides for you to probably want to keep as you're calculating, reperforming your modification, your reo or your dealing, your reo, your rental ROIs. If you're going to sell a note later on, how to kind of calculate that, how to sell it, how to buy a note, hold onto it for 12 months and then sell it and get the cash flow out of that. So really great stuff for you to take a look at in the slides there for it. We'll cover that stuff tonight. I'll tell you right now there are no dumb questions I will ask you. Please keep your questions relevant. Don't ask me some oddball question that we're not covering because I will just delete it and that will be a stupid question. But plenty of time for you guys to ask questions at the very end. So once again everybody, glad to have you here on note night in America. So anyway, let's get to this stuff. So here's the first question. This will determine a lot of different stuff no matter what you're looking for. Rick, you know you're watching on YouTube, hopefully you're looking for non performing notes or performing notes or who else is on here tonight with us? Crystal Marcia likes non performing notes. I know that she can get re performing or sell them off or John likes stuff, Frank likes stuff, Ken likes stuff, Larry Pearlman like stuff. Laura Miller likes non performing that she could re perform. You know, Montrese likes to buy them non performance cheap ones that he hold for rentals. RJ likes to sell some stuff. So we all have, like I said, different variety. T. Miller says non performing. Great. Thank you. Till you decide what you're looking for. What are you looking for? Because that's going to determine really your strategy because you can't be a jack of all trades. Now what do I focus on? Why focus on primarily non performing notes that I get that are occupied that I can get reperforming or non performing stuff that's vacant, that's usually in a pretty fast foreclosure so they get turned. So. So you know like my boy Dimitri, he's looking at a deal right now in Indiana. It's a vacant asset but the value on it is lower. But it's actually in pretty decent shape that he could take around and either e buy the asset cheap enough and sell it on the retail and finish the foreclosure due to details. So it's all what you're comfortable doing. It all comes down to what's your focus and what are you looking for. You're looking for performing notes. Are you looking for that cash flow that comes in every month that you don't have to do anything, you just buy a payment stream. It's like buying in a note. You're gonna get paid on a monthly basis through a third party servicer. You don't have to do a lot of work. There's nothing wrong with that. Are you looking for non performing like I said, where you can buy debt or assets at a substantial discount, well below what people are paying on the reo side these days. And then you look to get a reperforming and make a great yield or take the asset back. There's a variety of things you can do with non performing assets. Now. Are you looking for reperforming stuff? Stuff that was once non performing that's now reperforming. So you step into a payment stream but at a bigger discount than a performing note. Because there has been some trouble in the past that those rough waters have calmed down, you know what I'm saying? A passive aspect, but you're still buying at a bigger discount because the bar went through some trouble. We have plenty of those from the last couple of years, obviously. Right. Then maybe it's. You're looking more of a rental. I had a person call me today, hey, I'm looking for more ways to find rental properties at bigger discount because I'm thinking about the note business like. Well, yes and no. It may, you may not want to do the rental business after dive in the note business because if you're tired of toilets, tents and trash outs, you know, we don't have that a lot of times. Now do we take some assets back? Yes. Could you turn them into rentals if you want? Yes, you can do that if it's in a specific area. I buy in about 30 states. I don't really want to own a rental and it's really here in Texas, maybe Florida. There's on site management but that's my personal opinion. Okay, now maybe you want to reos, maybe you want those big checks. Okay, great, that's going to happen. With what we see on the non performing side, we're probably going to foreclose or get a deed and lieu from the borrower probably about 30, 40% of the time or especially vine vacant assets. You're going to get a foreclosure deed loom a big chunk of the time. Now we're also seeing reverse Mortgages where the borrower had a reverse mortgage has passed away and those are basically reo place seeing those pop up. So that's an opportunity. That's some decent discounts for you guys. Now here's the thing that you have to look at and ask yourself with the money that you're using, is it your own money or are you using other people's money for using your own money? Then all you have to determine is okay, what kind of ROI do I want my money to make? Do I want it to make at least 8% and I'm happy? Do I want to make it 12% and I'm happy? Is my money bleeding away at 7%? So if I make 7% I'm actually 14% ahead, you know what I mean? Or needing to be. If I hey, I don't have my own funds to buy deals but I've got my friends, family, colleagues, people that I know OPM, other people's money that I'm getting at 6 to 8% I need to make 16%. So I'm at least making 8 to 10% for me and paying my investors, people that believe me happily back their roi. So you have to identify that aspect. And here's the thing, you're not going to be a jack of all trades, okay? Me, I like buying non performing and then getting them to reperform. That's my big cup of tea. I do my reos as long as they're usually in faster foreclosure states. I will buy if I get a big enough discount and my money costs are cheap. It's just those are some things that you'll have to determine that I can't answer for you today. Now if you don't have any money and you're not marketing for money, then you might as well log off and go back and watch the NHL playoffs or the NBA. Well, NBA finals and sets I think tomorrow night. But you get what I'm saying. Marketing for deals and marketing for money really go hand in hand. So a lot of the same activities and we're always constantly marketing for money. We're always constantly marketing for deals. But you have to know which facet are you looking for? And importantly too, what kind of time strengths do you have? What are your money costs? Are you using your own money or using OPM and having that nailed down. Now if you're looking your money costs are 12%, you're probably going to be harder to find any performing notes or reperforming notes that are going to help with it. You probably need to be on the non performing side that you can get at a bigger discount. But if you get cheaper funds, guess what? The cheaper the money money is, the more options you have available to you. We're not talking long term, 30 years, we're talking short term, 12 to 36 months for you to borrow that money and pay your investors back in above average return. We talk more about that in our three day class. But anyway, here's some things that, here's some costs that you need. It's just not coming in, buying the note and getting the asset. I had a guy call me today too. He was like oh hey, I want to buy more real estate. Okay, well great. I want it in Dallas. I was like, well this is not for you. He goes, what do you mean? I said because the cost for distressed debt in Texas is going to be a lot higher because it's a faster foreclosure state. Well, I said who's, what kind of money are you using your own money or other people? Because I'm using my own money. I got quite a bit of money from being an investor for 30 years. So I don't really care. Does it cost me a little bit as long as I can hit a desired return. And I'm like oh that's great. You've got your own money. You know, if you're like Rick, Rick says hey, I need to market for money. That's not hard to do. Check out our classes. We'd like to help you out with it. Rick, there are the costs besides money costs. You got to figure out your due diligence costs. What's it going to cost for you to do due diligence and that's pulling BPOs O&E reports. There's marketing costs like email out to database. Several of you probably got emails from me this afternoon, yesterday and Friday. There's marketing costs of posting to different things canva to create images of your deals. There's a lot of little different things that go not too expensive. I mean the average due diligence is less than 500 bucks per asset. Really less than that 250 when you start figuring average marketing costs and things that you're going to make more offers than you close. So that's kind of figuring that in along the way. Now servicing costs, that's the continued maintenance of the loan and that could vary from as little as $15 a month for a performing like with Kobe financial all the way up to like 90, $95 per month for a non performing note. That's per note per asset. And they're going to be some more costs along with that, like legal and foreclosure costs. That can range from 1,000 bucks in Texas here, like 10 grand in New York, New Jersey, depending on the state and depending on the foreclosure time frame. You got to figure that into your costs too. Figure that that's going to get paid out of your profits. You got insurance, taxes, utility, maintenance. Those are holding costs. If the taxes aren't behind, you may not want. And if a borrower is paying that, great. That works good and performing this. But they're not behind you to make decision. If you're in the middle closure. Do I pay the taxes? I go ahead, pay the taxes. Go ahead and just foreclose and pay the taxes out of the proceeds of the auction. All right. Is the borrower paying or the borrower not paying? The borrower should be paying on these deals. Otherwise you need to deduct that cost from your cash flow. If you're going to take the property back, that's when you're saying, I'm going to take the property back and fix and flip it. What are your costs going to be to have an reo? Does it need to clean out? Major repair. I like light sanitized stuff that's very easy to be in and out of. Rentals, you're going to have ongoing repairs, maintenance. Along that. You're going to have management costs as well too. You're going to pay commissions that's going to be paid on. Take it all the way to an ARIA and sell it. Traditionally you got a rental, you got to pay commissions to get it occupied, stuff like that. So these are things that are not going to apply to every deal you do. But the more niche you get down and focus, then you got to know what costs are associated with each niche. If you're brand new to this, we're not going to go through that tonight. That's a different episode, different webinar for different night. But this idea here is you got to know kind of what you're looking at and it will vary asset by asset. Taxes will vary by asset. Insurance will vary. Foreclosure costs will vary. You could buy 10 notes and think you're going to foreclose on all of them and end up only foreclosing on three or four. You may end up thinking that you're going to get borrowers back on track and you get three or four. But the other six or seven you got to foreclose on or you get deed and lose from half of those. I hate to say this, but it's kind of like a choose your own adventure. Unless you really dialed into what your exit strategies are. Due diligence. And that's part of what we'll talk about long before anyway. Some other things you need to consider. Is this deal worth your time? We mentioned about that before. What's your cost? What's your rot? Not roi, but what's your ROI on your return on time? If you're working a full time career, if you've got working 60, 70, 80 hours a week, you may not have a lot of time to put into doing something new. Is this deal going to be worth your time? Is it a low paying note that's going to take a lot of work to get back on track, then it's probably not worth it. Looking at the interest rates, people have 2% interest rates. When I see that and it's on a 40 year, 50 year mortgage, I'm like, oh, I don't even want to waste my time with it because it's not going to be worth my time because it's too spread out. Like I said, we talked about this. Looking at your taxes, insurance, repairs, where labor costs, you're taking foreclosures back. What's it going to cost to get somebody out there? How rules the property, how close to labor is it? What are the repair costs? With increasing costs these days, servicing foreclosure costs, obviously it may le may literally look at this and realize maybe better for you to invest passively versus act. And if you're like I want to be passive, that's great. Reach out to me. We've got a fund that we're putting together. We're really excited about. Love to talk with you about that and some of the different ways we can help you put your money to work passively for you. And if you're active, great. There's nothing wrong with that. Active is great. There's plenty of opportunities out there for everybody. Things you also want to consider is avoid rural assets. I mean rural outside of major towns. I'm not talking like, oh, it's in Cedar Park, Texas, which is just north of Austin. Here I'm talking it's like an hour and a half out in the boonies. Okay, I was looking at a deal right now in Wisconsin, was 80 acres for $79,000. I was like, that's less than 1,000 bucks an acre. It's like two hours from Duluth and out of the middle of nowhere. Great hunting weather. But not near a lot of amenities. So you also want to avoid small properties, small balances of what's owned on the loans and specifically we'll talk more about this. But small payment amounts, small monthly payments can really get eaten up in your servicing costs and you end up with a negative roi. Remember that your bid amounts, they have to make sense to you when you're comparing them to the unpaid principal balance, the legal balance, and then of course the as is value since cases where there's negative equity, where they owe more, the legal balance or the UPB is more than the property's worth. Hey, make sure that you're offering is coming in a number of as is value at percentage. That makes sense to you. If there's a ton of equity above what's make sure that your percentage of UPB are legal. They're still going to leave plenty of room for you to make some profit if you got to take it to foreclosure and only bid on the legal balance. Okay. The important thing to keep in mind, making sure your bids will make sense. Just don't get in the habit of throwing formulas into a spreadsheet. You got to take some time to go back and look at those assets and piece together what's going on with the deal. Does this make sense? Does this not make sense? There's a lot of things you tell it's like a good soap opera. A lot of times you feel a little bit like Sherlock Holmes trying to figure out what's going on. But when you've done this as much as I have, I can help you out, make things happen. So here's the thing too straight up. Some sellers, some nut sellers out there are smoking some serious crack pipe. Okay. I was looking at a portfolio of some performing and some REO with my buddy D here from Armstrong Consulting. And the seller wanted, on a low balance note, they wanted more than the upb. It was like 11,005. They wanted 12 grand. I'm like, what? That makes no sense for us to bid on that. You know what I mean? Laura Millis is so true. They are. There's still a gap in a lot of cases. A lot of the banks, lenders, they've got non performing notes that they're looking to sell, but they're still value more than a lot of investors want to pay for. There's still that gap between in a lot of cases for others, that gap is getting narrower and narrower depending on the number of non performing notes they have. And then what's going on in the market right now let's face it, increased interest rates, increased inflation, people getting laid off. There's a lot of environmental factors that are going on, not only locally, but domestically across the country. Maybe your unemployment rates, your days on market may be a whole lot different in Royal Oak, Wisconsin or o', Brien, Texas than they are here in Austin, Texas. I mean, so you have to know what's going on. And sometimes the sellers just don't know what the hell they're talking about. They want something for an asset and they need to be told, listen, dude, your asset's not worth a hundred or 200,000. It's worth like 120. Okay, yeah, this might be worth 200, completely fixed up and repaired, but as is, it's worth 120 as it sits. Okay? So like I said, don't be afraid. You're smoking some crack. And the whole idea with this too, ladies and gentlemen, is that you're making offers. You're going to get better at making offers the more offers you make, not just something like blasting. You got to get really working through the numbers versus just running formulas. Stick to your numbers, but don't lowball. If you're one of these guys or gals that 50 cents on the dollar or 60 cents on the dollar would make sense for you, but you get scared and make an offer at 30 cents on the dollar. Like, come on, it's a performing out. Unless it's at like a 1% interest rate or 2% interest rate, it doesn't make any sense to make such a low ball offer. Okay, gotta know what your numbers, stick to your numbers. But also, don't lowball. Don't just be so scared. We've got a couple investors that do that. They submit bids are always way below 50 cents on the dollar. I'm like, come on man. If you need to know vacancy, pick up the phone and call the county to see if the power's on. If you need to know taxes, guess what? Get on the county and check. But do your numbers. Because what'll happen is if you consistently lowball and then you're making offers and they're not getting returned, you're not getting count back or being told what they are. You're really facing the fact that your bids are no longer being valued. They're like, oh, he or she is consistently lowballing. It's not even worth looking at it. Now if you're close and your bids missed out by 500 bucks or 1000 or a few grand, it's okay. And it didn't get approved. That's right. Follow up with the sellers in 30 days or so. Because the deal may not have closed during due diligence. The person that won the bid may have made a ridiculously high ball offer. And you're like, it's no way it's worth 200. It's worth 130. And they realized, oh, it's only worth 130. So they canceled their bid. So don't be surprised and make sure you follow up if your bids aren't accepted the first time around. That's one of the biggest things that helped make us a lot close a lot more deals in the last 12, 15 years is that we follow up with a lot of our offer. Okay, now let's get into the nitty gritty a little bit. All right. Performing notes tonight. Performing notes is where everybody wants to end up in. And performing notes are pretty easy. Yes, they're so easy compared to non perform. Oh, yes they are. A monkey could collect. Okay. A chimpanzee bobo, the monkey could collect on a performing note. It's not hard to collect. But you also have to realize performing notes are not always going to work for you because we got to go back to that question. What kind of ROI are you looking for or need to have to cover your money costs for you to make some money? Now, if you're looking at a portfolio of stuff that was original in the last couple years is 2, 3% interest rate, unless you're happy making 2 or 3% interest rate or you've got money at 1% like the Fed does and you can make 3% and that's 300% return on money. That's pretty good. But most of us don't have that. Most of us need to make something, have a return of at least 6% to make it worth our while or double that somewhere around 10 to 12 to pay off our investors, they're doing well. Now, if a bank is a performing note that's been paying on time religiously, they're not usually going to sell those performing notes at below par. They're going to usually sell them at par. And what does that par mean? Means it as the full unpaid balance. They're not going to take a discount off. But I have seen it happen occasionally when they were selling a portfolio on a loan program, they had some non performing stuff. In this one loan program, some of the borrowers are paying a time somewhere. So they sold the whole thing off at a discount, which is great. But if you're buying, you're Trying to go to bank of America, Chase, Wells Fargo, Citibank or any other major bank out there and they send you a list of performing notes. They're probably going to want them at par. Okay, lowest they make them might be 95 cents a dollar. You can always ask does it mean that they will do that? But we've had sellers come to us say oh we want par for like I'm like it's non performing, it doesn't make any sense. It's performing. Okay, I can understand that. But not performing, no, we're not going to play ball. Okay, but like I said, if it's performing on time, there's no need for them sell discount that money making monkey. That monkey is just collecting money on a monthly basis. All right, there's no need to, okay, got a low interest rate to you to them if they got money, cheap money at the fed, they're making 200, 300%. There's no reason for ticket discount. Okay. You also got to keep in mind if it's a government backed loan like a Fannie Freddie or there's private mortgage insurance, PMI attached to it, those things help, will cover default rates. So they may still not sell those government backed loans at a discount. They might not sell below 85 cents a dollar. And I see the door why? Because if they foreclose, they're still going to have the government insurance kicks in and pay them off in full. So I don't like to spend my time bidding on government backed loans right now. Doesn't make any sense because there's that big dysfunction. I'm not going to pay par for something that's a low interest rate. Especially when I got to make, I got to cover my money cost at least 6% and go from there. Now the one exception to that, there's always exception to the rules. But hard money lenders have performing notes. They may be looking to sell it par. Now those loans are usually at higher interest rates, maybe at 12%. I just got the phone with a big hard money lender in St. Louis. He's trying to sell 12 to 14 million dollars in performing loans. Short term loans, they have a higher interest rate, 12% or greater. And this is great. If you've got cheap money, you could come in and arbitrage. If you've got an investor say hard money lender's got $100,000 loan, hard money lender's only going to be roughly at 70% of the fair market value, less so if it's 150, they're probably at 100,000 dol. That's the loan at 12% interest rate. It's what's paying. If you've got somebody who's got 100 grand and they're happy making 6%, why not buy that loan, give them their 6%. You make 6% on that loan for 90, 120, 180, maybe 12 months. Okay. And that could be a possibility for you. And if you're got someone like that, you like the short term kind of high velocity aspect of it, and you got money burning a hole in your pocket, hey, great. Guess what? We've got some opportunities for you. Okay. All right, moving on. Performing notes. There are some rules when it comes to performing notes that you want to take a look at. Now these are not just my rules. There's a lot of other rules. Up performing notes, it's got to be with a third party servicer. Otherwise if it's not with like a Madison or even fci, I just vomited in my mouth. Lanhome, Covey, Fin. There's a variety of different third party service out there. It's got to be with third party service. It can't be Jimmy Bob collecting a check and then part of his proof of payment is sending a copy of the canceled check. That happens to be wrong. But you're always gonna get a higher value when it's a third party servicer. Okay, Obviously the loan's gotta be Dodd Frank compliant. I put that in there because especially on the owner finance stuff, people will do a onesie twosie here and there and they may not be Dodd Frank compliant, which is okay, but you're gonna have to make sure it's with a third party servicer. The paperwork is still good. And it's got some other things like 12 months of seasoning. Now, what's seasoning? That means we're throwing salt and pepper on it every month as we throw it on the grill. No, seasoning means basically the loan. You've gotten 12 months of payments and that loan has been the borrower has been paying on it for 12 months. You've got some sort of payment history, means seasoning. Okay? And you want some sort of down payment. You never want a borrower to come in. And Basically it's just 100% financing with no down payment. That's a high default rate. Especially if it's a newly originated loan, don't have 12 months of seizing, you have zero percent down payment. There's always probably going to be a default of some sort. And I prefer on under finance notes that we see at least an 8% interest rate or greater contract for deeds notoriously being at 9, 10%. Those are great to buy performing, if you like capital like that. We'll talk about reperforming stuff in a second. On a newly originated note, they usually want to see a 625 or greater unless there is a large down payment, usually 10% or greater, and they have equity. Now, if they didn't put a big down payment, but let's say the house they bought, they put 10% down. They financed 90%, but the House has appreciated in the last year to 120, 130. Okay. Now they got 40 grand in equity. That's like 30% equity. Okay. That's not so bad. We will not look at the 625 so much, but look into that stuff. You also want to make sure a clean collateral file. You've got an appraisal, a true solid appraisal, not a. Let's look at Zillow. I'm the bank, so I'm going to value the property myself. I don't care if it's only if ava appraisal says 50. I'm valuing at 80 because I'm the bank and I'm going to sell it at 80. Nobody gives a crap about that. That will actually devalue your asset. So don't do that. I don't buy anything else like that. Where it's got to have an appraisal when it was originated. Some sort of. Okay. Or have a couple BPOs. I'm fine with it. But not anything way crazy above. And here's another thing we don't talk about. I don't want more than two borrowers, a borrower and a co borrower. I don't want four borrowers. I don't want five borrowers. You know, sometimes we'll have vacation homes or properties, stuff like that, where there's four borrowers, two spouses or two husband and wives. Not that they're swingers, but you get what I'm saying is that's a huge opportunity for them to file bankruptcy and delay making payments for two to three years. So I don't like four borrowers, Co borrowers, no more than two. Okay. If they got more two, I'm not interested to it because especially if it's in the same family or different spouses or different friends or different names, you can break stuff out. Okay. Do not do that. Okay. Eight years. Yes. Thank you, Tony. So moving on. Let's go on here. So non Performing nuts with no equity. This is where they're upside down. The underwater need a yellow submarine to get to it. You always want to review the unpaid balance plus the arrears to figure out roughly a full legal balance and making sure that that full legal balance is more than the property's worth. So it has a negative equity. They owe 150 when the house is only worth 100. Okay. When it's that case, you're going to bid off a percentage of the AS is fair market because the fair market value number is less. Right. Don't care if that they owe 150. The house is only worth 100. So I'm not going to bid 80% of the payoff. That would be if 150 and 80% of that would be 120. Why would it pay 120 for $100,000 asset doesn't make any sense. I might pay 80 on $100,000 asset. It's in a fast foreclosure state and legal's already done. I usually want to be below 70%. Now if it's occupied, always have to prepare for the potential that they're going to repay. Okay, now what I do is I don't look at loan enough. It's a modified loan. You got to look at the terms of the loan mod. If it's a forbearance agreement, look at the terms of the forbearance agreement. You don't want to be people that bought a loan that was modified and they paid for 12 months and then for three years they didn't make a payment except for once in a month. You don't want any of those weird ones. Okay, so what I do, if it's still the traditional loan has been modified, I'll look at what the P and I payment is times 12. Divide that number. I would like my desired ROI to be and that's going to give me my offering. Okay. Now obviously if there's a loan mod or there's some reinstatement terms, I'm going to adjust that a little, but that's going to give me my offer. Okay, so If I it's $800 a month times 12, that's 9,600. And I want to make sure that whenever I'm paying for an asset is going to get me a 15% return. I'm going to divide that number, 9,600 divided by 0.15 to figure out what my offering would be. And I'm taking a look at an offering, whatever that number gives me and see how that number matches up to the fair market value and make sure I'm trying to be at that no greater than 70 cents of the dollar because I'm making a 15% reinstate. Now the next thing I would look at is I got to figure out, okay, what's it going to be like to foreclose or get dealing. They want to take a look and go, okay, I'm gonna go off somewhere winning 50 to 65% of the fair market value, depending on what I find as far as condition of the property. If it looks good online or there's crappy photos with doors hanging off it and you know, roofs caving in, I look at the condition of the property, I gotta look at the state it's in. If it's a longer foreclosure time frame and reduce my bid that 50% or less. If it's in a fast foreclosure, I would probably increase it up to 65% to the fair market value. Now keep in mind, I'm not going to then go ahead and reduce. I got to take my offering plus servicing costs, foreclosure costs, taxes, and subtract that from 90% of the fair market value. That would be roughly what if you take 90% because that's probably what you'll sell at the auction or what you would net after selling tax commission. So 90% minus your purchase price plus cost will evaluate your net profit and then take your net profit and divide it by your offer stream plus servicing and that'll give you your restfully estimated ROI. Want that to potentially be at least at 20% or greater on the non performing side with no equity. If your money costs are at least six to eight, you want to be at least double that, sometimes triple that. Now if it's vacant, you're not going to get the bar to come back to the table. If they're deceased, they're not going to come back and the Ghost and Bob Cratch and start paying on time. Basically just go to 50 to 60% of the fair market value depending on the condition. And that's what your offering is. Now what I do is I'll run three columns of my spreadsheets. One, to reinstate, what if I can get a deed in lieu in 90 days and I just figure out, okay, foreclosure costs are going to equate to my deed and lieu numbers. I'm not going to go above that because why? And then my foreclose. So I'm running those three formulas down to see If A, B or C makes sense to get them reinstated. If it's occupied, it's always going to make sense to foreclose. Deed loo on those three. Okay. Like I say, look at your numbers. If it's occupied. But a deed loan is your primary strategy or in a lot of times, like reverse mortgages, you're not going to get the bar to reinstate. So it's more of a foreclosure. Look at what your deed loan costs. Look at what your foreclosure costs are. Timeframe for the state's. So that's if there's no equity, negative equity, you're always going to go at the lower number, which is the fair market value. Make a percentage off of that. Okay? Now there's a thing out there called stair step pricing. And some people like, oh, stair step pricing is a lie. Doesn't work. This is meant to be a tool. If the sellers don't give you any type of pricing specs, you got to go off of something. And the reason the stair step pricing method is out there is to protect your ass, okay? To protect your assets. Okay. Now you're going to adjust this. You're going to just stair step pricing, plus or minus, increase or decrease on a variety of factors. But it starts at the top. Okay. If you're looking at assets that are $60,000 or greater, okay, let's just say they're in pristine conditions. The best asset in the portfolio, fast foreclosure or six months to foreclose, then you're probably going to come in around 65% of fair market value. Okay, that's over any assets over really 60 and above. Because the higher value to get 65% into the bigger checks. Now let's take it down a step. Let's go below 60,000. You have $50,000 assets from 50,000 to 59,999. Okay, same thing. If you're not getting any pricing, you probably want to be at 55% of the fair market. This is with the fact that they owe more than the property's worth. Yes, we see assets underwater still today. Okay. Assets in the 40k range, 45% of fair market value. Assets in the 30k range, 35%. Assets below 30. Okay, 30,000. Below 25% of fair market. Why? Because you don't want to pay. You're not going to pay 65 cents on the dollar for a $30,000 asset. You're not going to pay 19 5. When if you have to replace the roof. There you go. You're now negative or the acs walked off in protest of the summer degree. Okay, so stair step pricing. It's a guide for you. You may want to save this. Take a snapshot of it. Like I said, if you download my slides tonight, you can actually download this and keep this somewhere where you can see it. Like I said, there are things that will adjust. You will increase your bid or decrease your bid on a variety of factors. What are those factors? Well, here's some of the rules to it. Increase your offering by 5, 10%. If it's in a fast foreclosure state or legal is almost completed, you got less than 90 days to finish the foreclosure. It's 30 days from the auction. Okay. I would pay 70 cents on the dollar for an almost an reo. All right. I would go do that because I know provider's not trashed out. That's off of as is value, not after repair value. Okay, great. It's in decent condition. Yeah. I pay 70 cents of the dollar for a property I back and just I can sell the foreclosure auction. Sure. You also want to increase your offering. If you're asking, like I said, is in pristine condition. I mean you could sell it tomorrow. You'd eat off the floor. We've run into some situations like that where the borrowers. This was in just great condition. Yeah, we'll increase our offering because it's in a good condition. We also will do it if it's in a prime location. Like if it's an Austin, Texas. I know I probably need to be at 75, maybe 80 based on the appreciation going up Miami, I probably need to be in 70, 75%. We would appreciate going up as long as it's not being swallowed up on the coast by the increasing tides, you know what I mean? But looking at where if it's in a good location, it's downtown or something like that, you're going to pay a little bit more for it. That's okay because demand will speed up your sales and increase your roi. Now increase your offering also, like I said, if it's a one off bid and the seller wants you to make individual bids, loan level pricing, you're going to need to increase your offering for the most part closer to 70%. Probably just to get in the ball game. Okay. Just to get in the ball game. And then you can always decrease your bid. The values come back less or due diligence. But if you try to come in at 50 cents a dollar for the premier asset they're just going to laugh at you and not accept your offers. Okay, now one of the things you can do. Let's talk about decreasing your bid. Well, decrease your offering if it is in a longer judicial foreclosure state, a longer time frame. Like if it's in Florida but not Miami, let's just say Tallahassee and it's the beginning of the foreclosure process. While Tallahassee is, go ahead Florida state, give me the whole Seminole, you know what I mean? You got to look at if it's in a longer foreclosure state, maybe it's a rural area, it's outside of town, smaller thing. You want to decrease your offering if it's a longer state. Like I said, it's rural, you know, less than really 50,000 people. I start worrying about it unless I have carnal knowledge of that area or I've got assets already in that spot. Okay. Also too look at the taxes owed. You can check the taxes owed before you make an offering by going to the tax appraisal office or calling the tax office, say hey what's owed on this? And reduce your bid by the tax is owed. Okay. Also too dealing with crappier assets or if you're buying this asset, the pristine, but you're trying to buy some other assets, hey, throw in some of this other fertilizer, some of these other crappier assets for not much. Then decrease your offer a little bit by what you would pay for those crappier assets. A pool offering many bulk offerings. Always more value than the one off pristine asset. Because you're buying some of the junk that's eating up the costs, eating up the profits of that hedge fund or the seller. Okay. Those are also increasing, decreasing stuff like that. You got to know what's going on that asset and that's the adjustment to it. Stair step method has just been a guide. Using these things. It's not. Sometimes it works, sometimes it doesn't work. Sellers want smoking that heavy crack pipe. Just move on and wait for some more deals. Let's talk about non performing notes with equity. Now here's a couple of things. I don't want to get my transitions here. Got a little goofy. But anyway, non performing notes with equity. Let's flip this around. House is worth 150. They only owe 100. Okay. Most sellers out there on non performing assets with equity, they still going to come in at 80, 90% of the unpaid balance balance or the legal payoff balance depending on the equity percentage. Okay. And right off the bat. If you're paying 80, 90% of UPB or legal, it's probably not going to make sense to reperform. Okay, here's the thing, Tony. These days it's just valuing off of you. That's what we would normally do. But when they have all these notes with unpaid balance and legal balance, when you have all this equity, you can't really just go off of UPB. 50 cents of UPB might be 25 cents to the dollar. They may go 50% of legal. So it varies on an asset, by asset basis. Okay, you got to take a look at each asset. But that's the thing, some are going to want 80% of legal. Now they may not paid for five years. So that legal balance may be extremely high. But you got to take a look at, it's an adjusting market out there. So yes, in some cases it will just work off of upp. Others cases you got to look at the legal balance. Okay? This is with equity. Without equity you're going to go off the fair market value, which is less. Okay, pay attention, my friend, pay attention. All right. Now here's the thing. When you're looking at a portfolio or a state and it has all these values, it if the valuation that they give is a Zillow value or an avm, an automated valuation model, they didn't pull an appraisal, they didn't pull a full bpo. Their value is not going to be act, okay? Especially if it's a rural asset, you can expect the values to come back less than what Zillow says, at least 20k if not greater. So keep that in mind. We were looking at a deal today that they valued at 200 grand on Zillow. And we looked at it, we're like, that's probably like 150 what came back at 160. Forty thousand dollar difference what we thought. And they wanted 138 for like we're not going to offer 138 and 160. If you want to figure out the number at 138 was what, 64 or 69% of 200. Well, we'll go 69 of the 150 and call it a day. So you gotta look at that stuff, expect it. Those numbers are not accurate. Now it may, it may be low. We bought assets where they value the asset on the Zillow value and the value actually came back at 30, 40 grand higher. Well, we didn't tell them that. We said we'll close on this thing pretty Quickly. Okay, so keep that in mind. Another thing, if it's vacant for six plus months, it's been vacant for a while. Expect to rehab something. We're getting these tapes and the sellers are sending over the funds are still going over their, their inspection reports. BPOs that are six months to a year old. It was already vacant. Then we know it's gonna need some work. It's been through a winter or two. We may need to fly there. Has to go by and actually walk the asset, see what kind of condition it's in. Okay. It may make sense to make an offering at their number and then fade the bid down during the due diligence. They're like, no, we're sticking to this. Okay, great, we'll make it at your price point. But I do have the right when I pull my real numbers that I'm going to fade my bid if it comes back lower. And every seller will appreciate that. They can understand that. Because you got to realize a lot of these sellers, they may have a thousand, two thousand assets that they're working. They're not going to pull values every year or every six months. They're going to look off, they're going to use some of the same tools to try to modify or manage of their assets. They may be waiting for somebody to pull values on their assets, come up with stuff. Okay, now if you're using opm, you're using other people's money, you probably, when you're calculating your roi, either getting to re perform with equity or getting it, buying it as a non performing note with equity, you got to probably see at least a 20% ROI, at least that hurdle. Why? Because probably half that money is going to go, half that return is going to go to your investors, the other half is going to go to you. But you've got some thoughts you get considered along the way. If I'm going to buy a note with equity, I got to make damn sure I'm going to make a decent return on investment. So I'm not going to pay above 80 cents of the dollar off the legal balance. I prefer to be at 70 cents on the dollar, if not less just because of things, taxes, foreclosure costs, things can drag out. You got to make sure that your money's cheap enough for you. If you're at 12% money cost, it's going to be harder for you to make money on equity deals. You want to have a cheap money cost for the equity deal side of things. Okay, another thing to look at, look at your p And I payments, principal interest payments. Really, if it's P and I payments below 250amonth, they're at that number, maybe even 300 or below. So you probably just want to avoid it. Unless you're just using your own funds. Like if you're going to use your IRA to fund a deal and it's a low P and I payments, performing servicing costs are 15 bucks a month with Kobe. Okay. It may make sense at that point depending on what you're buying. But as you start doing this, you start getting things rock and rolling. You're using other people's money. You're going to probably want your payments to be 300 or greater unless you're using your own funds. Okay. So keep that in mind out there. Okay? My rule when it comes to these is to only bid on Equity deals at 70% of legal balance. Like I mentioned a few minutes ago, or less. If you have to foreclose, you got to realize you're only going to get the legal balance. You will not see the equity side of the deal. You're only going to see the legal balance slide. So it sells above your legal balance. Guess what? That goes to borrower or anybody else that's behind the first. You're only entitled to what you wrote on the first. Keep that in mind. Now, reperforming notes, it's a great asset class. I like reperforming notes. This is where somebody's bought a non performing notes. They got a servicer attorney involved. Borrower outreach. I got the borrower back on track now. Now most re performing notes are going to sell in the 80 to 90% of UPB range. Okay? Reperforming depending on the underlying interest rate. Now if it's a 3% mortgage, I'm not going to pay 90 cents to the dollar because then I'm really only going to see about a 3.3% return. Same thing. It's got to make sure that my ROI is still good. But if it's 8% mortgage rate and it's been reperforming for a while, guess what? Okay, it may sell at a decent ROI contract for deed that 9.9 10% they're selling it. That's 70, 80, 90 cents of the dollar depending on what the rate is and what the yield is. Now here's the thing about reperforming. For it to be truly classified as re performing out, it needs to be have 12 months of on time payments. Not six months, not nine months in the 12 month period, not 10 months. It's got to have 12 months of on time payments. If a borrower's going late this month or they're two months late, it's no longer performing. I don't care if they paid 36 months straight after they ever defaulted or in behind and they got back on track, they got to be still 12 months straight. Now they could still be behind. They make a payment, they made 12 months straight, but they're still a year behind initially because they fell way behind. Look, if they're getting caught back up, I'm okay with that. I just want 12 months of straight on time payment so I know that the borrower is back on track. And here's the thing too. The borrower's got to be paying taxes and insurance. If they're not paying the taxes, insurance. And I got to pay that, well, I got to deduct that from the annual net cash flow. So this is a question you're looking at reperforming. You have to say is the seller or is the borrower paying taxes? Insurance. If they're not paying that, you got to pay that. You got to dedicate from the cash flow to figure out what your true ROI is. And some people forget about that. So the same thing, calculate this. We take the PI payment times 12 minus your servicing costs and that equals roughly our annual net cash flow. And divide that annual net cash flow by your desired ROI and that'll equal roughly what your bid amount will be on it. Okay. The lower UPBs and the lower P and I's, like I said, you're going to pay lower than 80%. So somebody wanted $0.85 in the document. Cause that's what they're going for. Well, that's great if it was a decent deal. But this is a smaller balance, smaller payment amount. Servicing costs are going to eat up a chunk of my payment. I got to do that. You also too. There was something I was going to put on here. What was lower upbs, lower P and I. Lower balances, lower values too. You want to keep that little down lower. Kind of the almost a stair step method. Okay. Like I said, avoid P and I payments below 250 unless you're using your own funds. It's just, it's a good thing to do to make sure that you're. Because if you do have to go back and start foreclosure, you've got to leave some equity between what the payoff is and what you bought the note at. So you can make up that. At least get paid in full. If you have to foreclose. Okay. I do have these I want to open up for any questions, any questions yet. This makes sense so far on the performing, the performing with equity or the non performing with no equity, Negative equity, non performing with equity. The reperforming, that's yours. Basically four different classes you're going to come into. So one of the things I did, I created these slides here. These next couple slides are basically our five formulas we kind of use when calculating return on investment. When we get a spreadsheet in, everybody always asks, well, Scott, do you have an ROI calculator? No, I don't have an RI calculator. Why not? Well, because there's no reason for me to run a deal through an ROI calculator in the front end if I don't know my bid is accepted and I haven't pulled due due diligence and stuff like that. I like to run formulas and I know my percentages and I'll narrow those percentages down as we get closer. Okay. I know where I need to be at because there are specific numbers I average in for my deal flow. But here's the kind of thing if I'm going to get it reinstated, pretty simple based off just a reinstatement P and I times 12 divided by price plus servicing costs plus taxes. And that's if taxes are owed. I have to add that in there. Same thing if insurance is not being paid. You need at insurance. But that's going to give me my roughly if I reinstate or if we mod say, okay, we're going to go their payment, normal payments, 400, we're going to bump it to 600 for 12 months. What's my ROI going to be for the first year before we drop it back to 400. So that's kind of the formula for that. If we're going the second round, we're going to do a deed in lieu or a foreclose. Okay. This is assuming if we get a deed and lie, we're going to use the foreclosure cost as our deed and lieu money. Okay, same thing. We're going to check taxes, see what's owed on taxes. We're also going to annualize return. So we can do this in six months. Great. We're going to double it to annualize it. We're going to do it. It takes us two years. We divide it by two to figure out what is. So the same thing is the sales price fair market value times 90% minus our investment, which is the purchase price plus foreclosure. Plus tax owed. That there would give you your net profit. Take your net profit and divide it by your investment. And that's going to give you your rough estimate ROI if you get a dean lieu or foreclose. So if you got 5 gr grand in foreclosure costs, but you're going to use 5 grand the bar to get in a move out and take that, great. And it takes you six months then to start to finish. Great. Then you would double that number by two. Okay. We'd annualize that. This is all assuming one year as it goes. Now here's another one that's deed loan foreclosed. So here's your major three numbers there for you. Okay, let's do the next one. If you want to take it and keep it as a rental. Oh, I want to buy. I want to buy notes at a discount, take them back as a rental. When you start comparing ROIs to either reinstate, deed lou foreclosure or to rental, you're going to be very seriously disappointed. The rental numbers because it's basically we assume it's going to take you one year to foreclose and then one year to get it up and rent and that stuff. Okay. So you're always going to have commissions on top of your rental stuff. So I say commissions of vacancy. So we're only going to determine that you're going to see nine months of rents. Okay, so take your rent, whatever your monthly rent is time, nine months, divide that by your investment purchase price plus foreclosure, plus taxes if it's owed, and then divide that number by two years. That number is almost always going to come out somewhere maybe 12% because rents have gone up quite a bit, but usually in the single digits. Okay, so take a look at that and go from the question here from somebody. No problem, no problem. All right, let's go on here. Let's go to the next one. Our next formula is our kind of our note sale. How do we figure out how we sell a note to a note buyer? Okay, well, you take your P and I payment times 12 months. Divide that by 85% of UPB or the Fair market value, whichever is, is less, is equal to what your note buyer is going to roughly see if they buy it from their roi. Okay, now another formula here is a note sale. If you're basically keeping it for a year and then selling it. So you take your payments, P, 9 payments times 12 months that you've gotten for a year. Plus if you sell the note, what do you sell the Note for. Well, if you sold it at 85% or whatever, the amount you sold the note for, great. Minus your investment, purchase price, servicing and taxes. So payments plus your note sale profits and then divide that number by the investment investment and that should give you roughly your note sale roi. Obviously the payments side of this is your front end, your note sale is your back end. So if I take in, okay, I'm going to get having a 16% return while I'm getting payments on the first year at 12 months, we're going to sell the asset off and see another 35% profit. Okay, so those are the five formulas that we use a lot in our marketing here when we're evaluating a deal. What doesn't make sense. Like I said, if you'd like a copy of the slide, you can always go to the chat roll thing I just shared with you guys in the chat roll. Or you can once again pull out your phone and capture that. Capture. That'll take you to SlideShare where you can download it. Or you can go to my LinkedIn and look at my updates because I posted it there as well. Or if you follow me on Twitter 1 Scott Carson, you'll see that we shared that link on the Twitter handle there for you too as well. And if you're joined us late, don't worry, the replay will be available for you guys tomorrow. We'll send an email on about noon replay. We'll live stream it again across all our social media channels as well for you. So any questions, comments, concerns from you guys tonight before we let you go for the evening? Where is this helpful? Does this help you? Kind of. Okay, I understand that. Okay. Things I have to look for. Look, you're not going to understand how to make a bid an hour on Note 9America, but you will by breaking down assets, by starting to work through some of these things and start working through individual deals. One of the most valuable things that I did as a new note investor years ago, I was very lucky. Our office initially back in 2000, golly, it would have been 2010. Yeah, we had an office sub branded a place, an office inside of a bigger building in the had a training room. It had dry erase boards on all four sides. I would spend time in there going through individual deals one at a time, running scenarios, going through specific things and that helped me really close a lot of deals by working through them. And then I just made a bunch of offers. So that's the thing you have to look at out there. So let's see here Comments from you. Thank you. T. Miller hey buddy. Good to see Scott Meredith out of Dallas. Everybody helps get stuff help layers on the process. Good. We'll talk some more about this later during your one on one coaching. Scott K. Hellman really helpful to get the overview how to begin to analyze this. Scout your rock. Thank you K. Appreciate it. Laura Miller, great as always. Thanks. I have learned from love and we'll talk to you at noon tomorrow. Laura to go through that tape that you got in which is great and good stuff. We went through here tape today as well too so no it shouldn't be scribe this. The download link should take you directly to my slideshare. Okay. Slideshare is free then caution thing. Yeah you probably do go there and download Tony Female we got a lot of presentations on here, a lot of tools that you may want to follow through on there. Okay. I had to sign up. No problem. It's a free account SlideShare. It's part of LinkedIn but check out some of the other things in there. We have some slides from different things 3030 marketing matrix or top stuff there while we have uses a lot quite a bit in the last few years. Okay. All right. Well anyway guys, actually if you're part of the WCN crew, those slides, the formula slides are already in your basecamp group for 97amonth. You already had those. You got access to access to tapes. You've got also access to all of our online virtual training out there as well. So any questions guys? Glad to help out. Glad to. Hopefully this is valuable for you all. If you're interested in more of our coaching and events. This is your first time here. Feel free. Drop me an email@scottclosenotes.com we'll be glad to talk with you and just talk about what you're trying to do, what's your goals, what are you looking to accomplish and hopefully we can put you in the right path to success. So once again thank you guys for being on note night in America here in 2022. Go out, have a great evening and we'll see you guys all at the top the of everybody. Sam.