Non-Performing Notes / Deadline Is Here
Published: Thu, 04/17/14
A Service Of The Paper Source, Inc.
April 17, 2014
Hello ,
Non-performing notes (NPNs) are the real estate and note investing
opportunity of the decade. Even many long-time note investors and
brokers do not understand this niche -- those that are new to notes
don't understand it either. That spells profit!
In this issue is part I of my interview with Jack Krupey, an
expert in NPNs.
Cheers,
Bill
W. J. Mencarow
President, The Paper Source, Inc.
www.PaperSourceOnline.com
P.S. I want to save you $100.00.
Jack Krupey will be teaching NPNs at the Las Vegas Paper Source
Note Symposium next week. He'll be joined by other experts in
their fields -- people who DO what they (rarely) teach). And they'll
all be available for private consultations at no charge.
You'll meet note investors and brokers from all over the country...
we expect close to 300 attendees. The networking opportunities
will be awesome.
The registration price goes up $100 at midnight tomorrow,
Friday. If you sign up now you will keep that $100 in your
pocket (at least until you get to Vegas...)
To learn more about the Note Symposium and take advantage of the
discount, visit http://tinyurl.com/2014notesymposium
or call 800-542-2270.
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Non-Performing Notes: The Interview With Jack Krupey,
Gemini Capital Managers
Part I
Bill Mencarow: Jack, the obvious question is: Why in the world
would anyone want to buy a note when no payments are being made?
Jack Krupey: There are a couple of reasons. Number one is pricing.
We're buying these notes (loans) at a discount to current market
value. It doesn't matter if they owe $400,000 and the house is
worth $200,000. We're going to be buying it at a discount to the
current value of the property. We're able to get it at enough of a
discount that even if we do have to foreclose we'll be able to
liquidate the property and make a profit.
On the simplest level it is a secured investment. We feel we
underwrite our purchases well enough that even if it is a tough
foreclosure -- which they aren't always -- we can handle it.
We really look at four or five different exit strategies when we
buy these. One thing to keep in mind is that on many of these
loans, it's not that the borrowers are bad -- many of them have
just had a rough time. Maybe they lost their job and got a few
months behind. In many cases, they want to pay but they don't have
the $10,000 or whatever to reinstate and bring their loan fully
current. They get caught up in the bureaucracy of these big banks
and servicers that lose their loan modification paperwork or they
just make the process so difficult that people get stuck in a black
hole. They just can't get current. We've had loans where the people
tried to send in payments and the bank returns their payments
because they don't have enough to make a full reinstatement.
When we buy these loans there are times that we can work out a
deal very quickly that a big corporate bank could not work out.
That could include doing a modification or forbearance agreement
and getting a borrower paying right away.
We're buying at a much bigger discount than you'd buy a performing
loan. If we start collecting the original payment or an affordable
monthly payment in some cases the yields are well into the teens
and sometimes into the 20% plus returns. We're very happy to modify
a loan if the numbers make sense.
On some of the vacant properties we can get a deed in lieu of
foreclosure. We've certainly had many cases that we make one phone
call and the person who owns the vacant house says, "Yeah, I'll send
you the keys. I don't want it." Not every deal is that simple or
easy, but there are plenty of deals that ARE that simple or easy.
The bottom line is that there are multiple exit strategies,
ranging from modification, to deed in lieu of foreclosure, to being
the bank and doing a short sale where you're the one that can
decide if you're going to accept a short payment or short payoff.
What's great about this business is there are so many different
directions and angles and strategies you can use. These aren't
the traditional cookie cutter performing loans that you might be
able to broker to an institutional seller-financed buyer. But on
some of them the story makes really good sense and the cash
flow is good.
On some of the notes the borrower has made four or five payments
and you can't bring it to an institutional buyer but you can sit on
the loan for six months. Then after it has 12 months' seasoning,
you may be able to bring it to a buyer that you could sell the loan
to at a profit.
Every fund has a different strategy, and if you are an investor,
depending on what your strategy is, there's probably a fund that
wants to sell loans to you and is motivated to sell loans that fit
your criteria, whether it's performing or non-performing or whether
it's regional, etc.
Everyone wants California, everyone seems to want South Florida.
But if you're willing to look at loans in the Midwest or Texas, or
areas outside of the prime resort areas of the country, there are a
lot of funds that don't really want to hold loans in the Midwest
and they'll sell them at a bigger discount than they'd sell a prime
California loan.
I think anyone who's tired being a landlord, anyone that's looking
for deals and can't find deals at the courthouse steps anymore
because the big hedge funds are now buying at the courthouse steps
in some markets, should look seriously at investing in NPNs. It's
getting harder and harder to find a traditional real estate deal
that makes sense.
Bill: Do you work with brokers who bring you notes?
Jack: We do work with brokers, and we're very easy to work with.
Bill: How would someone who wants to broker NPNs find them?
Jack: That's a great question. There's no one right answer, but I
think brokers should approach smaller banks or regional banks that
are not on everyone's radar. Look for the small banks that
underwrite themselves, in-house, ones that don't have a committee
1,000 miles away doing that.
I haven't had much success trying to buy NPNs from the traditional
seller-financed national or regional note investment companies.
Be careful of the broker daisy chains. Develop your network
carefully. If someone is on LinkedIn or some other website and
says they have a $100 million tape (portfolio), chances are they
don't have any control over it. They just heard about it from
someone else who heard about it, etc. It's very tough to get
deals done at that size, and chances are great that it's not a
direct source.
I'll be going into much more detail at the Las Vegas seminar
next week. We will have a strong turnout of real estate and note
investors and brokers, hard money lenders and others. This
will be a tremendous learning and networking opportunity!
Among the topics to be covered are:
- What's Your Discount? Properly Handling Objections in the Note
Business and in Life
- Finding Note Owners With Any Budget - Or None At All -- & Getting
Them To Say "Yes!" To Your Offer
- Buying & Brokering 1st Lien Non-Performing Loans
- Advanced Concepts Using Notes To Defer Income Taxes, IRA
Strategies, Financial Privacy
- Creating Multiple Income Streams
- Note Brokering 101
- What You Need To Know About Dodd-Frank
- Advanced Note Investing
- Non-Performing 2nds
- I Opened My Roth At Age 12 (And Made Over $600 A Month From My
Notes At Age 16): How To Get Your Teenagers Excited About Wealth
Creation
- Seller-Carryback Business Notes: The Untapped Cash Flow
- How To Profit From Commercial Notes
- Advanced Internet & Social Media Marketing Strategies
What you will NOT get:
- Sales pitches
- Speakers with no hands-on experience
This is the only seminar of its kind and will only be offered
once in 2014. For additional details and to register,
see http://tinyurl.com/2014notesymposium
The price goes up $100 at midnight this Friday, so lock in
your savings now!