Note Brokering of Defaulted Mortgages and "Turnkey venture Programs" - Not?

Insurance Claims - Note Brokering of Defaulted Mortgages and "Turnkey venture Programs" - Not?

Hi friends. Now, I learned about Insurance Claims - Note Brokering of Defaulted Mortgages and "Turnkey venture Programs" - Not?. Which could be very helpful in my opinion and you. Note Brokering of Defaulted Mortgages and "Turnkey venture Programs" - Not?

Warning - this is a memo on the Art of Note Brokering. It was prompted by a note broker friend of mine who recently sent me a one-line modernize on what he had available for me: "Turnkey investment - Newly rehabbed middleclass homes (former Reos) with large equity positions, leased, and sure cash flow in a shop beginning to rebound." I think you perform Jadedness levels of '10' when those kinds of deals make me go "hmmm, wonder what's under the covers on this one."

What I said. It shouldn't be the conclusion that the true about Insurance Claims . You look at this article for home elevators what you wish to know is Insurance Claims .

Insurance Claims

What was coincidental was that earlier the same day that I received this email, I'd just read a notice from someone else advertising an "amazing turnkey investment program".

So, being the perennial tester, I decided to run some numbers to try to outline out what kinds of "deals" these could be. I cobbled together some logical assumptions in order to see if I could understand it.

Back-of-the-Envelope Calculations

0,000 purchase
20% Down Payment
2% closing Costs
22% or ,000 - Down cost plus closing Costs

10% or ,000 of Down cost rebated at close (one base way to rebate this would be to have the purchase price "inflated" by ,000, so now you have a 0,000 transaction, in which the jobber accepts ,000 and the remaining ,000 is funneled to the buyer face of escrow - often doesn't show up on the Hud, which is questionable institution - there are other ways but this is a base one)

,000 Cash out-of-pocket

Reason for the Fico requirement is that obviously the "investor" is qualifying for a loan, most likely brokered by the "seller" or a firm associated to the jobber (wonder how many points they charge out of curiosity).

Assume a 6.50% rate on an 80% 1st mortgage - it's an ,000 loan. Now, here's the tricky part - what Kind of loan are these guys putting the buyer into - hopefully it's full doc fixed rate financing (cautious and inexpensive - look at default rates on fixed v variable rate financing and there's more than a diminutive skew towards Arms). Chances are it's an Arm with an Io cost to minimize the financing cash flows. But let's give everyone the advantage of the doubt and say that it's fixed at 6.50%.

So now, what you're looking at is a monthly of 4 (assuming 30-year amortization - though these guys probably push for 40), not together with taxes and assurance (do they contain T&I payments, and do they escrow for those when they're setting you up as the buyer?). Taxes, let's assume for simplicity, would be 1% of acquisition, so that's /month, and assurance could be other or so, so that's about 7/month.

But wait. Since I'm not genuinely managing my rent, there must be someone who's being paid a property management fee, right? Well those fees can typically be 10% of the collected rents.

Now then, let's define "positive cash flow". The fact that this investment strategy is marketing "positive cash flow" rather than yield, the way an enlightened investor would think (I'm showing my bias here, and why insight returns is crucial to your success as an investor in my opinion), means that this investment is most likely throwing off a few dollars, rather than a juicy spread.

So to be genuinely cash-flowing on this property, you need to be bringing in something north of 0 or so/month. So net of a property management fee of 10%, that would mean rents of 2.

But wait! Just to play it safe, since that's the type of investment strategy being proposed here (a "safe" alternative to your shop chaos), then we should probably build in a vacancy rate of maybe 1 month every 2 years. So that's a 4.2% vacancy rate.

Ok, so I reduction my rent down by 4.2% - call it 4%, so that means I have to get rents of 2 / month. In sure markets I'm sure 1-bedrooms or 2-bedrooms can fetch that kind of money, easily. And in some others, I'm sure that that's pretty tough to do. But this should be, by my very simplified calculations, what the rent should be in order to maintain a "positive cash flow" claim.

A Note on Rental Predictions

The challenges with these Reo plays is that you're not quite sure what the rental shop is doing where Foreclosure volume's pretty high. We're looking tenancy rates drop, leading to rental drops, in sure markets (completely counter-intuitive here), because some people move in with family, and because continued Foreclosure volumes lead to an growth in Reo catalogue whose only buyers are investors seeking what ... Rentals. Therefore, rents are staying soft in sure markets.

So the "guarantees" of cash flow in these investment strategies are iffy - the only way to make them "solid" is to genuinely have lease agreements already signed. Could well be, I'm just pointing out one risk to the cash-flow model.

And then, what genuinely intrigued me in the email I received from this firm selling the "Turnkey investment Strategy" was something they termed a "guaranteed buy out" where you can get 1/2 the appreciation. Interesting. So the seller's genuinely selling a put selection on the property. So it would be genuinely spellbinding to read the language of that "guarantee" and what you're being "guaranteed". If I were to hazard a guess I'd say that there's no charge price being locked in with that put, but rather a time frame (e.g. We'll but it back in 24 months), and a notional cost to the selection (and we'll give you 1/2 the appreciation). So if there's no appreciation (the forecast for price growth over the next three years agreeing to Zandi over at Economy.com is flat over the next 3 years), then are they saying they'll buy it back at cost? And if there is appreciation, then you're essentially signing something now that costs the jobber nothing, and gives them 1/2 of some future "upside". Wow. What a deal. For them. It's only a deal for you if the future buyback price is genuinely defined now. More than likely, it's some funky equation to the Seller's benefit.

Me, skeptical?

What it sounds like to me is a deal to take shop value of an Reo (,000), inflate it by 10% and get a lender to finance that incremental price to facilitate a cash-back (potentially illegal) to buyer situation, with a claim that "rent will cover the mortgage payments" but possibly on a loan that's an Interest Only loan, and on a loan that doesn't escrow for taxes and insurance.

That alone worries me.

The added claim of guaranteed buyback strikes me a great diminutive scheme altogether. No one in their right minds guarantees whatever - not in this market, not in any market. So what's happening there is that you're being invited to "part" with 1/2 of your future gain in some fashion, and potentially still be on the loan (or there'd be some other prestige Buyer Sucker lined up to take you out).

So my query to all Brokers out there: do you know exactly what you're pitching? Have you seen the numbers?

Because if you don't know the structure or the numbers inside and out, then you're part of the question rather than the solution.

The Best Brokers Have All Walked Their Talk. If it's such a good deal, why wouldn't you do up to 4 of these yourself?

You may know all of this, and I'm just preaching to my keyboard. And that's fine.

But if you don't, do yourself a favor and learn the intimate details of what you're brokering so that you can notify and educate your buyers.

For a chapter on perfect note brokering:

We had Steve Cohen at Nautilus revealing his skills and his trade: We had a query and respond session with him as part of our hidden way Club Webinars.

Here is one of the main take-always from Steve, a top Note Broker:

A Good Note Broker sees Things that are Unrealistic in a Trade.

A good broker is like a good waiter or waitress. Imagine walking into a fine restaurant (you're an investor looking for deals), and you are seated and given the menu. Your waiter comes up ("brokering" food to you - helping you to pick if you need help) and you ask him "What can you tell me about the duck?"

And your waiter looks at you dumbly and says: "Ummm, well I don't know, sir, I've never tried it."

Dumbwaiters are a relic from the past.

Help ensure that dumb note brokers become a thing of the past too.

So let me leave you with a parting note: even if you broker only a particular note, you owe it to yourself to know what to look for in what you're brokering.

If you haven't invested in yourself and your own knowledge, how will you ever come across to your buyers as a trusted and knowledgeable Note Broker Source?

If people don't take the time to educate themselves about notes, they're bound to fail as a note broker.

I've seen many brokers fail.

The only ones that survive are those that genuinely understand the business.

There are very few products out there teaching whatever what bank paper, let alone non-performing bank paper, genuinely is, and what to do with it.

And if you don't take advantage of drawing on my knowledge of the business, organized into an easy-to-digest and thorough 16-hour Note Buying training procedure where I take you from Start to conclude on note deal after note deal, using "live" deals from my own portfolio, then you're missing the point about the brokerage firm altogether, and you'll be one of the "Ugly" brokers out there.

You don't want to be chasing buyers and sellers your whole life.

If you are a Note Broker, you want to close a trade.

For that, you want 'sticky' relationships, where sticky isn't just defined as how many deals you do with someone, but rather, how much Value you bring to your Buyers and your Sellers.

The more you bring, the more you get paid.

It's as simple as that.

I hope you will get new knowledge about Insurance Claims . Where you possibly can offer use within your day-to-day life. And most importantly, your reaction is passed about Insurance Claims .

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