Wednesday, February 18, 2015

Real Estate Notes

My former business partner Bob Malecki has been investing in real estate notes lately and having some good success. Here, in this guest blog, he shares his reasons:

As you may know first hand, the inventory for fix & flip candidate properties has been rapidly declining across the U.S. due to less foreclosures by the banks. I've been hearing this from investors all over the country. 

The primary driver behind this is that, rather than foreclosing on the non-performing loans, banks are selling off these distressed debts to the secondary market to free-up their capital, since they are required to maintain reserves of 6-8X the amount of each loan which is not performing. Since a foreclosure takes anywhere from 90 days to 2 years, depending upon the state, and an average cost of $20,000 for a bank to foreclose, they are now liquidating more and more severely delinquent loans to note investors.
I've been watching this shift occur over the past 12 months or so and have been steadily buying non performing loans in a few key states in the US. Of the 4 non-performers we bought last year, we have been able to work out a loan mod with the borrowers and now are seeing the annualized ROI from cash flow ranging from 19% upwards to 85%


Well we buy these notes with specific criteria requirements and we buy them at a substantial discount. This keeps our liability minimized and our investment-to-value ratios quite low, which provides us the flexibility to extend terms or lower the interest rates for borrowers, while still getting an aggressive ROI from their modified monthly loan payments. A rare win/win for all!

Being a fairly seasoned landlord and flipper, I have to say that the process and upside for buying and repositioning distressed mortgage notes far surpasses that from owning rentals and flipping homes. In addition, the management of the debt is much simpler, since I'm no longer dealing with tenants, contractors, real estate agents and competition from my local peers. 

Now don't get me wrong-- I still own rentals and plan to continue flipping homes, its just that I've found the note business to be much more profitable and easier to manage.

To learn more on notes, visit Bob's new web site at
Happy Investing!

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