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Jacksonville Defaulted Note Buying

Updated on November 25, 2012

Melvin Road Note

Melvin Road Note...the only photo we could pull!
Melvin Road Note...the only photo we could pull!

Making Money Without Seeing the Property

 

When you are a new note investor, everything seems to take forever to close and nothing seems to go smoothly.  Such was the case with the first note that Amber and I closed together. 

Now, I’ve bought individual notes before along with helping some previous partners close some nice deals over the past few years. But it is a different story when you are launching your own note buying firm, things can’t happen soon enough, especially when it is your name and reputation on the line.  Such was the case with one of the first Florida notes that we traded. 

Amber and I had spent a good chunk of time calling banks and lending institutions tracking down secondary marketing managers and we were finally fortunate enough to get a hold of the right individual within Wells Fargo Financial who had some defaulted notes on some residential properties across the country that they were looking to trade.

We received a list of over 140 residential 1st lien mortgages on properties all across the United States.  We submitted offers back to WFF on over 40 notes.  Among those notes was one located in Jacksonville, Florida that had an unpaid balance of over $97,000.  The bank had not received a payment in over a year from the homeowners and the bank placed the value of this property at $28,000.  Now for those of you that don’t know, Florida home values have been hit hard with foreclosures, hurricanes, and increased insurance costs that have caused many home owners to walk away from their homes.  This was not the case as the home was still occupied by the property owners. 

We did some preliminary due diligence on the property by using Zillow.com to get a rough idea as far as what the property was worth and found out it was worth closer to $40,000 after we had a local realtor pull comparables.  After finding out the property was in decent if not excellent shape, we made an initial offer to purchase the note from WFF for $3,000.  WFF countered at $5,500 and we countered back at $4,000 which was accepted! 

So we had several exit strategies to consider.  Luckily the lender gave us several weeks of due diligence while they were finalizing the loan sale agreement and getting everything signed off.  We could purchase the note and then wholesale the note to another note investor for a quick profit.  We could buy the note, foreclose on the property or get a deed in lieu from the homeowner, and then sell the property as our own REO or Real Estate Owned property as we were now the bank.  Or we could buy the note and work out a modification with the home owner or have them list the property for a short sale and hope for a retail buyer to step in.  We chose option #1.

Wholesaling notes is a great way to make quick cash without having to come up with your own money to buy the notes.  You basically work out the negotiations with the bank on a deal and then sell the contract or deal to another investor for a markup or commission.  While we could make more money foreclosing and trying to sell the property over time, that requires you to show up with cash and have to wait to collect your profit when and if you sell your property/note. 

We started advertising our note online through Meetup.com, Craigslist, Active Rain, and Facebook.  We immediately got a hit off of my Facebook profile from a prospective buyer, Mike G.   He did his own due diligence and realized that we were not “marking up” the numbers and that he still stood to make a nice profit even if he paid the $10,000 price tag we wanted.  So once the bank provided us with contracts and wiring instructions, I sent Mike our escrow account and our own note wholesaling agreements.  Things didn’t go as smooth as we would have liked them as his attorney was pretty old school in every sense of the term and had never completed a note deal so it took almost three days of me hammering home that what the attorney was wanting was not going to happen as this was a note deal and not a traditional transaction. 

Finally after some convincing, we got the attorney to wire the funds and we in turn wired the $4,000 to Wells Fargo to become the new lender/bank on the Melvin Road note.  We quickly turned around and reassigned the assignment of mortgage document that WFF sent to us to Mike and his company name and we walked with a nice $6,000 profit.  So we picked up a note for four cents on the dollar of the note amount, and then flipped it for a 150% profit off of the purchase price to receive an infinite rate of return as it cost us zero dollars to finance this transaction as we simply used the end investor’s money to finance the deal. 

Yes, Mike knew we had the note under contract for $4,000 and that we were going to make $6,000.  Mike was more interested in the $20,000 in profit that he stood to make on his end of the deal.  We ended up closing several other deals out of the same note pool.  If you think of our profit in terms of a realtor’s commission, a realtor would have had to sell a $200,000 house in less than a day of work to make what we made.  What makes more sense, making $6k on $4k or $200K?  You should know the answer to that one.  Oh yeah, we never saw a picture of the property, never inspected the property, and spent zero dollars of our own money on marketing as all of the websites we used were 100% free! 

If you are interested in finding out how you can also cash in on buying defaulted notes on residential or commercial properties, check out www.WeCloseNotes.com and learn from two of the best in the industry!

Scott Carson

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