Performing Michigan CFD Case Study - 18%+ ROI

Foreign this is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property for panties on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now here's your host CEO of We Close Nodes, Scott Carson. Hey everybody, Scott Carson here. Just want to say thank you again for listening to the podcast. If you've been listening for a while, you're subscribed to the podcast. First of all, thank you. Second of all, hey, you know if you're you're not one of our coaching students or you haven't signed up for one of our three day workshops, here's an opportunity for you. You want to check out our WCN membership. This is the biggest bang for the buck of the notice street. Besides our one on one coaching, this is our monthly membership for 97amonth that gives you access to all of our online training, our virtual workshops, our note weekends, our special one day master classes that we've taught in the past, anything that we have going in the future, as long as you're a live member, if I can't make you or save you $97 a month, I'm doing something wrong. But save you paying 997 or 99 bucks or 399 here or anything like that. We make it affordable at $97 a month and like I said, it gives you access to all of our past replays, our upcoming classes, our access to our special classes. We also do weekly coaching calls with our WC members and also our WC members also get first crack at tapes and lists of notes that we get in after our one on one coach to take a look at them. But it's a great way for you to go. You can also schedule call with me anytime to go through deals that you're working on marketing things, questions you got going on about a deal. We're here to help you. So how do you get signed up for that? Really easy. Just go to noteumbrella.com that's noteumbrella.com get signed up there for you 97amonth guys. Like I said, biggest bang for the buck of the nursery and we want seeds of the family. So let's get you signed up today. That's knownumbrella.com welcome to the no family everybody and thank you for always for listening. Good morning, good afternoon and good evening everybody. Hey welcome this episode you are hopefully you have are having a wonderful Monday. We just wrapped up our October virtual note buying workshop here the past three days. So I'm a little tuckered out. But I wanted to make sure and kind of go through this individual note deal. It's something that we studied on the workshop. Pulled it off of a website for you guys. And I think it's a great little case study to show some good returns, some decent returns if you're using other people's money. But kind of the power of taking action more so than anything else. And how some of these little deals do make really good sense. Tom. To get the ball. Rock and roll. I know we get people that all try to complicate it. I'm trying to flip big things. I'm really trying to take big. And the whole idea is just keep it simple. Stupid. Right? I can't make this any more simpler than it is. And this is a great little performing note. It's in Jackson, Michigan. All right. Jackson, Michigan is on the west side of Michigan. A lot of growth going on in the area. A lot of rehab. It had been depressed for a while, but I really do believe a lot of investors are going in and regentrified. Our buddy Don McAlpin was actually up there a couple weeks ago buying a tax lien and was really impressed with some of the construction going on because he commented on the short one minute video we did talking about this deal over the weekend showing the coaching students how powerful, how fast you can get marketing out to raise private capital. So let's go through this deal and I'm sure if you have questions you're gonna reach out to. I tried to predict the questions you're going to ask. What was funny is I've already had three people reach out to me this morning wanting more details of this note from just the one minute video that I posted with Tick Tock and then re shared it to YouTube and then Facebook and then to Twitter and LinkedIn as well. So somebody else liked the video. Good. Somebody asked, do I have paperwork? Good stuff. So let's, let's look at the numbers, let's look at the specifics about this deal and we'll get. Rock and roll. Now this is the, you know, Jackson, Michigan, you know, it's an older neighborhood. This house is not the newest of houses, but it also is not the, you know, the ugliest houses. And this is an older photo. It's a couple years old. There's not a new online photo of the property. The other one I found had snow on it. It's Michigan. You're gonna get some Snow and actually this property does not do the just now I like the American flag outside. I like emotional equity. But there's a new borrower in the property. The seller of this note of this property on a contract for deed I sold to somebody new who basically bought it in January of last year and they've been into it for about 18 months, 19 months making payments. So part of it would be your due diligence to drive by. What you can see over the left hand side is there is a trash dumpster here. I don't know if it's this for this house that we're looking at or the neighbor's house but there's being some rehab done to it. This photo is taken prior to January of last year. That's when the loan was originated was January of last year to an owner occupy. So it's right now it's a performing contract for deed. Now if you don't know what a contract for deed is it's definitely something's very common in Michigan. Ohio is basically since these are low balance homes below 100,000 a traditional bank really isn't going to do a traditional 30 year mortgage on it. So investors are basically selling these on terms but they're holding the deed back in their name and the deed isn't transferred until the contract is paid off. Now there is what's nice about this. This is a not a 20, I mean it's amortized over 20 years but it's got a five year balloon for February of 2029. You know just, you know just under five years from so four and two thirds from us. But it's a single family home, three bedroom, one bath. It originally said 800 square feet online and I looked at some more stuff. It's 1100 square feet. So I'd be willing to bet that there's a finished basement in this place. It's kind of common in Jackson. Like I said it was originally built originally in 1920 but it's been rehabbed relatively recently. The current as is fair market stands around $70,000. Okay it is owner occupied. We would verify that but it was purchased for roughly right at 50,049, 878 and some change in January 2023. The first mortgage payment took place in February of last year. So they've been making payments roughly about 18 months I guess it's a 20 year note, 10% interest rate and there's a balloon actually for February 20th, not January 20th. My apology those type it into it. But anyway it's still hey four Years from now you'll be getting paid back whatever the whole balloon is. Now the current P and I payment, that's principal interest payment is 537amonth. That's not taxed insurance. There's an escrow of 113amonth on top of that. So the borrower is paying $650 per month basically. So there's insurance being collected, there's taxes being paid. Current unpaid principal balance is 46, 878. So they paid down about three grand, which is nice or actually yeah, you have to drive about 3. Again, they made roughly right at 20 on time payments. The spreadsheet was dated as of September 1st, so they were due for September. So we want to make sure that they made September and October payments part of our due diligence. Okay, but we're just going to go ahead and assume that right now the seller made a notice that they've paid the insurance through July 2025. So that makes me assume that there's force place insurance that the servicing company is billing the borrower for on a monthly basis and it's being reimbursed through escrow. Okay. Now the seller and the note seller is looking for 32,700 on that. But they did say they were flexible so maybe we could even get it at 29:30. But it's a $70,000 assets that you're picking up for less than for basically 46 cents on the dollar or at roughly about 70 cents on the dollar of UPB unpaid principal balance. The payoff is right that 46, 878 because they're on time. So you're in a pretty good secure LTV and itv. The e unpaid balance and the fair market value, not too bad to get started off and the dollar amount's not huge. We'll talk about cash flow, we'll talk about rent rates here in a minute. So if you took, if you just bought this with your own funds, we'll just take it that way. First, 537amonth times 12 months is going to be annual income of 64.44. Let's go ahead and take $25 a month in servicing costs out of it. That's $300 deducted from that. Maybe the servicing cost is covered, maybe it isn't, but we're going to assume it isn't. That leaves you a net cash flow of 6,144. If you take 6,144 and divide that by 30, your purchase price at 32,700. That's not any. Any other broker commission fees on top of that. That's roughly an 18.78% cash and cash return per year for you. Now remember, there's a balloon in 2029. So when we ran it through an amortization table, the rough balance, give or take, provide the keep playing on time. The Payoff balance in 5 years of balloon should be at 40,000 07:56, give or take a couple bucks. That means you would have. If you take what you paid for the note at 32, 7 and the balloon, the difference in that is $8,000 $56 in profit. So you would get another additional lump sum in February 2029 when they refinanced out. Now, hopefully, if they're doing the smart thing, they get refinanced out, hopefully the value goes up. I don't know. If they couldn't get a traditional loan, $70,000 or $50,000, kind of tough to sell. What could you do at that point? Well, could you. If you wanted to keep on the bar to make payments or they didn't pay you off, you could do that. Could you evict and foreclose? Yeah, you could do that too. If it's, if they don't refinance, you have all the right to do that. You'd want to double check the collateral file to make sure everything is written and have an attorney review that. But that's a pretty good profit margin. So if we add those things up, the 6,144 we'll just do times 4.3 years is $26,419 in cash flow. You add an additional $8,056 of a balloon profit. That's a total of 34,475. Now, 34,475 divided by what you paid for the note at 32 7, that equals 105% return. Obviously that's over 4.3 years. So we need to divide that total cash flow divided by the number of years, 4.3. So it comes out to 24.5% ROI all together if they keep paying and pay off in five years annually, basically the 18.78. But with a balloon, it's a pretty good ROI at 24.5%. Can we agree to that? You don't just see that every day. Okay. Now, of course it's the bar paying the time, making sure the insurance and taxes can even be paid. There's some things going to happen between now and five years. Okay, obviously. All right, but that's kind of a no brainer if you like the area, if it's in a good area. Obviously if it's in a shithole, we're not going to buy it. Okay, you send a realtor buy or an external BPO agent drop on it. Looks like crap. Not going to happen. If the collateral file doesn't look good. There's things that will kill this deal before doing it. But the seller is actually selling it a price that kind of makes sense. So hopefully they're in below 32. I think they've had this for a few years based on what I could tell. So they've owner finances a couple of times, canceled the contract when people stopped paying, took the property back and then rehabbed it and sold it. So I think that's roughly what I could tell based on the payment history. Because here's the thing with it being a contract for deed you're going to get there's going to be a quit claim deed. That's what's going to transfer ownership from the seller. The deeds in his name. Remember it's a contract for deed. So you trans. Basically it'd be a quitclaim deed and assignment of beneficial interest being transferred at the county and then you would also still have an assignment and a launch transferred along with your transfer docs to you. Okay, now let's say you don't have the 30 to 7. So you go out and market for investors. Hey, would you like to get 10% return on your money and say we're going to but we're looking for 35,000. Why do you want 35,000? Well we're going to put a little bit of extra money in our pocket in the front end to help us as a new note investor. Okay. So if you're paying 10% on $35,000, that comes to 30 $500 a year. That's $292 a month you're paying your private investor. Okay. Now you could start paying them almost immediately if there's a performing. I would still say do it quarterly just for the heck of it. But that's still not a bad day. So if you take the 537amonth payment that the borrower is currently paying P and I you minus your $292 monthly payment to your investor, let's go ahead and take out that servicing charge of 25 bucks. That means you're gonna net $220 a month in profit to you. Now are you going to get rich on $220 a month in profit. No, you're not. But guess what? That might pay your cell phone bill. That might pay something. That's a good starting point to get rock and roll. Because basically after 12 months, that's $2,640 a year coming in. That's not bad. That's a start. It's a, it's a. There's a whole lot worse things where you're getting 200 bucks. That's still, that's still where we want to look at. Okay? That's not bad. That's what more than what most people get in rent difference. Okay, but guess what? You're not responsible for the maintenance on this property. The owner is. The borrower is on this. So 220 and not having to do toilet tents and trash outs, hey, that could be a benefit. So after one year, you basically got 2,640 coming in. If you figure 4.3 years of profit, that's 11,352 in cash flow to you. Remember, there's a balloon, okay? So the balloon's gonna hit. You're gonna get paid off of 40,756, which of course you're gonna pay back your private investor. 35,000. That's a net profit to you for 5,756 in that balloon profit. Let's go ahead and add that up. So 11,352 plus the balloon payment of 5756, plus I put an asterisk here, 2300 bucks. Now where did I get that 2300 bucks for? Well, if you're buying it at 35 and the seller's willing to sell it right now at 32, 7, that's that $2300 difference. It's a little bit of cushion. That cushion is there. I wouldn't go spend it. I would keep that in case the borrower stops paying. You could use that money to handle the eviction. But let's say since they're paid on time, you don't need to tap into that. It's an extra. Basically, that's tax free money right there. 2300. So all in all, with those three buckets, the monthly cash flow for 4.3 years, the balloon difference between paying, getting paid off and paying your private investor 35, and then what you didn't spend, between what you purchased a note at and what you borrowed from your investor, that comes to $19,408 in profit in a 4.3 year period. Not bad. It's about five grand a year on Average. If you averaged it all up, that's a pretty good deal. Now let's say you get it for 30,000. Well then that goes up to 21,000 if you borrowed a little bit extra. Okay. So that's, that's why I think this is a pretty decent little deal. It's not a get rich quick. It's not a get wealthy. Hey, I take every $20,000 to me, who wouldn't take that? A little bit per month with a better size payoff. So you're going to basically get that 5,756. I'm sorry? Yeah, you're basically going to get the 5756 in five years. You're basically just getting 2,600 over the 4.3 years. And then, but you get a little bit on the front end, the 2300, the monthly cash flow, and then a little bit of a bigger payout at the very back end. Now if the seller, what happens? Okay, what happens if the seller stops paying or doesn't refinance? Well, guess what? In Michigan, a contract for deed is treated as a eviction process. If you're going to foreclose, you're not foreclosing is basically going through eviction because they're treated as a tenant relationship. Okay? Now there is one caveat. If a borrower brings 25% down at the down payment when they purchase the property, then you got to go through the foreclosure process. But Michigan is still relatively a faster foreclosure process. All right, so hey, not too bad. They didn't bring 25, they bought it for 50. I think they may have put one, maybe $2,000 down. I'd have to, I want a lot of want to look at that in the due diligence. How much exactly did they put down? All right, but here's the thing. Think about this. If you put yourselves in this borrower shoes, they're paying monthly. They paid for almost two years straight. The house is worth 70 plus. It's going to appreciate probably three grand a year. Do you really think the borrower wants to get foreclosed out on this? No. They're probably going to pay this to the balloon. Okay. And you know, not so bad. But if they don't guess what, you evict and now you own the property. It's as it sits now, 70,000 minus your 32,700 purchase price. That's a gross profit of 37, 300 as an REO profit. If you take back and sold it, well, there's going to be some closing costs, evictions and stuff like that go in there. So let's just say it's basically let's if you take 10 of 70 grand, that's 700 bucks, right? Or no. Yeah, yeah, it's 700 bucks. Okay, so let's say appreciates three grand a year like it has, you know, so next year it's 73 and that fox here is 76 because it's, it is appreciating up there. So we just offset our commission closing costs and still net about $32,000 provided it doesn't need a complete full rehab. But if it does, guess what? That's where you file an insurance claim through the fourth place insurance and then you do what the hell you want, turn around and sell it, turn it into a rental because the rent rate's twelve hundred dollars per month. Or guess what, you could turn around and owner finance this property on another contract for deed as well if you wanted to. Whatever your decision is, that's completely 100% up to you. Any let's see here. So yep, here's the rentometer, here's the quick pull that we pulled from the address. So you can see the orange dot right here is the property. Some green which is a little low and then some blue which is about the same size of comps and then some red around the area too where it's hot. So I would say your rent rate is comfortably right at about that 1200 mark. Maybe a little bit higher in some areas. It all depends on the comps associated with it. Okay. But hey, you're going to get probably at least thousand dollars a month. Okay, that's not so bad on a $32,000 investment. Any questions? Any comments? Now what would we do our next steps to be? All right, next steps are hey, we make the offer and we start the due diligence process. Now I would make the offer at 30. I would see or 29 to see what they say and then come up maybe meet in the middle at 31 or 30. They said flexible. Maybe they mean flexible. Maybe they are flexible. But guess what, is this a deal to lose over $1,000 difference or $2,000 difference? Not really. The numbers make sense as it sits provided that the due diligence comes out. So once our offer is accepted, we would get an external broker price opinion from Baldwin Advisory Group to double check value and external condition of property. We would order a two owner title report definitely on a contract for deed. You definitely want to pull a two owner report. And on the and so get that from Baldwin Advisory Group. We would ask full copies, full scanned copies of the full collateral, the financial documents, the whole loan file. We would also ask for servicing notes, you know an updated payoff from the servicer payment history, make sure they paid on time obviously making sure that they've paid the last two months, you know the September payment and octopus. Now if they didn't pay those make those monthly payments and they're behind, well this is now 60 days behind. I would ask for a bigger discount. Okay, I might go back to 25 on this or find out what's going on and seeing what servicing come now if it's self serviced I'm not going to be happy with it. I'm going to ask for a bigger discount because self servicing there's more information I got to pull and I don't necessarily have a clean track payment history so I'm just putting an Excel spreadsheet, stuff like that. All right. Like I said this could be a great deal for your self directed ira, some lazy assets or raising private capital. I mean listen folks, 10% is a pretty damn good return for somebody to be passive for four years, right? Five years. Hey that's not a bad day to get things rocket. Wrong question from somebody. Dale says nope, good question. Good info on the balloon. Don't think we covered that yesterday on self service I tell the story that's coming right off the top of any offer. Yeah, exactly. No, we didn't discuss the balloon yesterday. I mean we talked about they refinanced in 60 months to compare what we borrowed the note for and we ran by the amortization table when I was looking doing a little bit deeper diet. There's a balloon on it and you cannot and yes it's still legal for people to put balloons on contract for deeds if they're not doing it like a traditional mortgage company and doing you know more than really four a year. Okay. Yeah I'm, you know if it's self serviced I'm going to be like listen, we're going to deduct, you know we're going to take the cost for self servicing and a little bit more to put that damn thing together because it's gonna be a pain in the ass to get the service. We're gonna want every canceled check, a proof of every payment made and go from there. But the fact that there's insurance already paid, that's a good thing. Is that handled through the servicing companies that handled individually. All right. And why is the borrower not paying it. All right, so any other questions, comments, concerns from you guys? Not a bad little deal to get started with. Can we agree to that question here from somebody? Did the listing show an escrow? Yeah, they're paying the 116 roughly dollars per month. I'll go back to the first. So yes, they are paying 113amonth in escrow payments. So they're paying insurance and taxes. I would be once. Or they're paying taxes. At least the insurance is being paid in full per year and they're getting renewed. But back from it because basically they're paying $113 a month. You know, that's $1300 a year coming in escrow. I don't think the taxes on this are 1300 bucks, but I could take a look at it because I can't remember. But anyway, there you go. All right, questions here. Thank you, Dale, for asking. Escrow is a good sign. I agree. It's a good sign. It definitely is a good sign that it's probably being serviced with somebody else, which I like. So. All right, if there's no other questions, I want to thank you guys for jumping on here that were part of the the workshop the last couple days. Great to see you guys. We'll have the replays available to you probably by Wednesday. I'm not going to do too much work the rest of the day to recover from teaching all weekend, but as always, feel free to book a call with me@talkwithscottcarson.com and if you're listening to this episode or watching the video and you'd like to see about getting in deals like that, feel free to reach out to me talkwithscott carson.com we'll talk about your goals, expectations, what you're looking for and see if we can't make it a win win scenario out there for you. So any other comments? Awesome. We'll go. Enjoy your Monday, ladies and gentlemen. Go have a good day. Make it a productive week. Thank you as always for listening. Thank you for watching. Make sure you leave a five star review and subscribe to the podcast or the YouTube channel and take some action and we'll see at the top, everybody. Bye Sam.