Buying Bank Defaulted Notes on Commercial Properties-Mansfield Apartments

Mansfield Apartment Complex

Front of the complex
Front of the complex

How We Cashed In

Commercial foreclosures are a hot buy right now, especially if it involves apartment buildings.  There are parts of the country that are hotter than other parts with Texas, Florida, and California leading the way and being on the hot sheet for investors.  Defaulted notes are an even hotter and niche product that few investors understand or invest in and we’ve found it to be a very lucrative avenue to make money in this real estate market. 

We’ve been actively calling banks for defaulted notes for quite a while now and when we get a list of notes or a tape sent to us from a lender, we really sit up and notice if there is something in San Diego.  Such was the case back in May when we received a complete list of Capital One’s small ticket defaulted commercial loans. 

We reviewed the list of over 400 apartment, retail, mixed use, and small industrial notes that were listed across 40 different states.  Our eyes quickly locked onto the single note that was located in California

The numbers made sense almost immediately as the bank listed the current BPO (Broker Price Opinion) at $699,000 with an unpaid balance (UPB) of $561,000.  So if the numbers held up, we could pick it up as it sat at par with no discount at roughly 80%.  Did we ask for less than that?  Of course we did!

After a couple weeks of negotiation, we were able to get the asset manager to agree to a final purchase price of $375,000 or at 54% of current market value!  Why did the bank take such a hit?  Because the property owner had not made a payment in over a year and if the bank foreclosed, they would then have to higher an expensive management team to run the property.  Banks are in the business of making loans and the last thing that they want to do is manage a small unit complex.  The bank was more than willing to provide us with the payment history, copy of the loan file, along with their most recent BPO for us to accomplish most of our due diligent.

Was the complex a trashy one?  No.  The complex was in a high occupancy area of San Diego that constantly saw a 95% or greater rental rate.  It was a small, seven unit property that upon our searching the MLS, title, and other search engines found that current owner had done a nice job of rehabbing the property.  The units were individually metered and rent rates were in the $850 per unit price range.  We made some phone calls to the owner that went unreturned and we had a realtor drive by the property and take some photos along with talking with a couple of the renters who stated that most had lived there for several years because the area was very desirable.

Now you are probably thinking that we had to show up and pay $375,000 of our own money to take the property down.  Not true.  While we were negotiating with the bank on getting our final number, we started to market the property to our list of nationwide investors and realtors that Amber and I have compiled over the last few years.   We also utilized several free services to build a buyers list by using Craigslist, Postlets, Backpage, ActiveRain, along with using Meetup.com to blast the deal. 

We were lucky enough to have several buyers ready and willing to buy this note from us and we finally settled on selling the deal to Matt Harder and his investment group for $415K.  We initially asked for $425K which if we held out, we probably could have gotten, but we like to have quick closings and Matt could close quickly and I personally like working with Matt and his group of investors.

Matt had taken the time to raise most of the money through private investors and after we had him sign our Assignment of mortgage and loan purchase agreement forms, along with providing him a copy of all due diligence documents and a copy of our Loan Sale Agreement with the lender, he was ready to go.  Yes, we did provide a copy of what we were buying the note which most investors won’t or don’t do.  Some people are scared about buyers going around them and cutting them out of the deal.  Well, once we had contracts signed with the lender, along with several back up offers in place, we weren’t worried.  Amber and I agreed when we first started that we would be completely transparent in our dealings with buyers and if they would not respect our time and energy and how we ran our company, than we would just work with another buyer.  Fortunate for us, we’ve not had to severe a relationship like that.

So one glorious Monday morning, we walked into the office and logged into our business accounts.  There it was.  $415,000 American dollars sitting in our escrow account.  We hollered, I danced a jig in the parking lot to the amusement and laughter of Amber, and we headed down to the bank to wire the $375,000 smackaroos to Capital One.  Once that was completed, we received an over nighted copy of the Assignment of Mortgage document showing Capital One and Greenpoint mortgage assigning the debt to Inverse Investments, LLC.  We made a cool $35,000 without spending a single dime of our own money and we owned a seven unit apartment complex in San Diego for less than 24 hours.

Now Matt stands to make some nice money on this deal as well.  His plans are to do a friendly foreclosure on the property and have it become his own REO asset and then remarket the property for quick sale at $650K.  If he sells it at a $600K net, he will make around $185K that he will split with his two other private investors.  That’s not a bad rate of return especially if it takes less than six months to sell the property, but our INFINITE rate of return still outmatches his nice return on investment.  It’s a win-win-win for everyone involved.  The lender wins by dumping a non performing asset quickly.  We win by making some nice cash and Matt wins by also coming out on top. 

There are over 27,000 banks out there and the mass majority of them have some sort of non performing notes on their books that they might consider selling.  While Capital One is a good size bank, don’t waste your time calling the big boys like Chase, Citibank, Bank of America or Wells Fargo as they are looking for much larger trades or sales in tens or hundreds of millions of dollars.  Now while some investors chase those large trades to hit grand slam home runs, the closing ratio on those deals are far and few in between.  We will take our $35,000 in 24 hours and enjoy the afternoon sipping champagne and mimosas from the middle of Lake Travis on a weekday while we make calls to smaller banks on smaller, but yet highly profitable deals.  The pool of investors out there who can close a $400K deal is much larger than those with $400M.  We will fish in the larger pools each and every day! 

On to the next bank and next deal!  So what do we know?  Banks sell defaulted notes.  You don’t need your own money to make money in notes.  The sky is blue.  The sun is warm.  Lake Travis is a lot of fun during a week day.  And finally this cold Prosecco is good!

If you would like to learn more how you can cash in on learning how you also can buy and trade defaulted notes, check us out at www.WeCloseNotes.com!  Thanks for stopping by!

Scott Carson

San Diego Apartment Complex

A marker1625 Mansfield, San Diego, CA -
Mansfield St, San Diego, CA 92116, USA
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Comments 2 comments

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1scottcarson 5 years ago from Austin, Texas Author

You could do that, but the return on investment to flip the property now and cash in and make money is the proverbial, "one bird in the hand is worth two in the bush."


Debt Collection 5 years ago

Very nice story. This is truly inspiring to hear. You seem like a smart businessman and I thank you for sharing your story. One question, would it be wise to hold this apt. building and make money off of the rents? Thanks again.

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