If you're going to get down to it, buying an un-performing real estate note is like buying a boat kingdom valley. The two best occasions are those on which you purchase it and the day you decide to sell it! Investing in a non-performing note (NPN-NPL) and cashing out to make a profit are my two most memorable days as a note investor.
You've heard of the old saying in real estate, the money is earned when you purchase. How true that is, especially in the note world! We've observed that you must take into account all the costs that you'll face beginning the day you purchase it, until the day you sell it, and use that to make sure you are not overpaying. If not, you can be losing money. Sometimes lots, but at times all.
There are a few positive and fuzzy feelings when you own your vessel, like when you take it out to sea for it's first time you're likely to face a number of ongoing expenses. If you put it in the water, you'll have to pay costs for docks, maintenance charges as well as insurance costs, and if you financed itwith monthly installments. If you keep it in your home or at an outdoor parking space you'll need to protect it from the elements and pay rent, and you could damage it in an accident by towing it to, or putting it into the water.
With NPN's, finally making contact with a homeowner that wants to stay, despite doing all he can to avoid being noticed is equally as thrilling. The result is usually attempting to work out a payment plan to get them repaying, or settling for a lump sum to pay off the loan is a wonderful feeling.
If not, then it's death with one thousand cuts.
Sometimes I feel like we are being nickeled and paid to the brim with a variety of service providers, including lawyers notes servicers, note servicers custodians, rehabbersand lawn cutters, property preservationists, appraisers photographers, house cleaners city agencies including code enforcement and county tax collectors health inspectors, realtors, home owners Associations utility companies and divisions for forest, trash haulers, flood areas, and so on. All of them want to get as much money from your pocket as much as they type or move something.
What I'm going to do now is find as many expenses as I can before we make an offer to purchase a note, so we can add them into our purchase price. One of the most significant things that we have discovered when working out over fifty notes is the price is typically higherand take longer to complete the transaction in states that have judicial foreclosure. And now that we know the basics of rehabbing real estate, we've considered incorporating possible home repairs expenses into our note buying bids to know whether we could earn money, or lose money.
This is the perfect time to factor in the old carpenter's quote "Measure Twice, Make One Cut." Notes, in particular, you need to be sure to run the numbers in and out before you decide to purchase the note that says "Calculate Twice, Purchase Right."