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Benefits of Investing in Notes vs. Buying Foreclosures/Short Sales

What are the benefits of investing in notes vs. buying foreclosures/short sales? Tim explains the advantages of buying a discounted note using your Roth IRA.

*Make sure you sign up for the FREE “Investing in Notes” Series

Happy Investing!

#buyingnotes #discountednotes #realestatebackednotes#rothirainvesting

What is a Discounted Note?

So, what is a discounted note?

Tim Siebelink, CEO, Capital Financial Resources, explains what a discounted note is, and the advantage of investing in these these using your Roth IRA.

*Make sure you sign up for the FREE “Investing in Notes” Series 

Happy Investing!

#buyingnotes #discountednotes #realestatebackednotes #rothirainvesting

Non-Performing Mortgage Notes As A Preferred Investment

A Conversation with Mortgage Notes Investor Tim Siebelink of Capital Financial Resources

Mortgage Notes BuyingTim Siebelink is a real estate investor who shifted his main focus from traditional real estate to buying performing mortgage notes, then to non-performing mortgage notes.  This sparked our curiosity, so we talked to Siebelink, who offered to share his insights and experience.

How did you find this new opportunity?

I was buying performing notes at a discount for cash from Sellers who had sold their property using seller financing and we’re tired of the small monthly income from the note.  When the economy tanked, with so many losing their jobs and property values in decline, many homeowners quit making their monthly payments, creating the perfect storm for me in non-performing notes.

How did you find non-performing notes?

I’m too small for banks.  So I deal with hedge funds whose business model is whole selling. They buy a large pool of notes from lending institutions and wholesale to investors like myself.

How do you determine what to buy?

The hedge funds sends out a list called “a tape.”  This is a spreadsheet I slice and dice to eliminate notes that do not fit my investment criteria.  I choose certain states and look for owner occupied properties, then buy the notes at a deep discount, usually at $10,000 to $15,000 each, for properties where the broker price opinion is between $35,000 and $50,000.

Then you negotiate with the borrowers?

Yes, my first question is “Do you want to stay, or do you want to go?”  If they want to stay, I’ll work with them.  But I work differently than most large lending institutions.

Tell us about that.

Large lending institutions usually require the borrower to be current, or they like to add the arrearage/arrears to the end of the loan before they work on a modification.  I’m the opposite.  I am willing to forgive the arrearage (from back payments, penalty fees and interest).  I propose we start fresh.  The homeowners see that as a good faith gesture.  I’m interested in creating a workable solution for them, that generates a long term passive income for me.

Do you check their credit?

Why?  I know their credit is trashed.

Do you verify anything?

I ask for pay stubs along with asking them to fill out a financial statement.

How do you determine the payments?

I work backward.  I ask, what does your monthly payment need to be?  And we figure it out together.  I don’t want to be going back in six months to start a foreclosure.  Since I purchased the note in such a deep discount, we let the amount they can afford dictate the interest rate.  In some cases the interest rate ends up being about 5%, but I have cases where the interest rate is 10 to 12% for 30 years.  It all depends.  Remember, I’m not creating a new loan.  I am modifying their existing note to fit their current financial situation.

There are a lot of Federal guidelines we have to follow, but my goal is to keep them in the property, if they so desire.  I can work it out so someone who can afford to pay a $300 to $350 can stay in a house where they owe $50,000.

This seems counterintuitive.  Can you trust the borrower?

Sometimes I can’t.  In that case, I foreclose.  But my track record since I started about two years ago is 90% pay after a modification.  Foreclosure cost me between $1000 and $3000, depending on the state.  Lending institutions cannot foreclose as cheaply as I can.  They spend on average about $25,000 per foreclosure.

Do borrowers walk away from their homes?

Non-Performing NotesYes they do.  They are tired of being beat up, they are emotionally drained, some are ready to move.  By the time I get there, some say, we just want this to be over.  I just got one like that in Dayton Ohio.  When I called the borrower, she said, I’ll deed the house to you, if I can just walk away.  From the care to the outside, I expected the interior would be in decent shape.  Rents in the area are $750.  I paid a broker to take a look and he said it would sell for $45,000 to $50,000.  I can rent, but I plan to put the property on the market and, when its sales, take the cash to buy three more notes.

Do you have investors working with you?

I do.  And I’m always looking for more.

If someone wanted to get into buying non-performing notes, what would you recommend?

Study; make sure they are doing things legally.  Educators (like Eddie Speed at Note School or Jack Sternberg at Noteworthy) are great resources.  I frequently take classes to learn more and to keep up with the changing market.

What are the biggest drawbacks?

There are three things that will burn you in this business: taxes, title and blighted property.  I avoid these problems by doing due diligence, using the web and by paying a local broker for photos and a BPO.

What’s most attractive about this?

It’s a relatively safe investment with high rates of return while keeping homeowners in their homes.  And best of all, it can be done tax free in a Roth IRA.  But this opportunity may not last.

What do you mean?

I figure there’s a 5 to 6 year window.  As the economy picks up, as people can get jobs and their property values go up, this opportunity will end.  A lot depends on what our leaders in Washington do.  When this window closes, I will go back to buying performing notes, because tightening in lending has created a bigger market for seller financed notes.  However, if the economy tanks again, that means more opportunity for me and nonperforming notes.

Either way, I’m good.

* Non-Performing Mortgage Notes As A Preferred Investment, Linda Rohrbough, Personal Real Estate Investor Magazine

Why Notes and My IRA ?

Notes IRA Investing

If you are looking for a great investment vehicle for your self directed IRA or ROTH IRA, Self Directed 401k or HSA, you need to look at  investing in Real Estate by investing in Mortgage Notes.

Owning a note and collecting the monthly payment is much easier than being a land lord and having to deal with the tenants, not to mention the maintenance on the property, taxes, insurance, vacancies and list goes on.

When you invest in these notes, you:

  • Do not buy the property
  • Do not pay to renovate a property
  • Do not have to get a tenant
  • Do not have to hire a property manager
  • Do not have to deal with any tenant issues (because you don’t have one)
  • Do not pay to upkeep the property
  • Do enjoy monthly cash flow
  • Do enjoy double digit yields
  • Do have a secured investment
  • Do have an automated system where the debt servicer collects the payment and wires it into you account
  • Do have a debt servicer who verifies property taxes and insurance payments are made
  • Do have the ability to make this tax free (an allowable investment for an self-directed IRA or 401k and other retirement accounts)
  • Do have the ability to buy these at a discount

If you compare this to the landlord model, there really is no debate.

Mortgage backed notes simply make a better investment. After all, you are simply the bank.

You can earn a high rate of return while keeping your investment to value low to protect your capital.

Contact us and we can show you how.

Tim Siebelink
Capital Financial Resources