For All You Experts ! - A Very Interesting Situation
I know most of you are buying foreclosures at auctions, but I wanted your take on an opportunity I have.
I've been offered to buy bad loans from a bank in order to then go through the foreclosing process. This loans have not yet been filed for foreclosure and I will have to file for it.
I wanted to ask you experts out there what do you think?
what kind of a discount should I buy these loans at?
do you think it will be profitable?
appreciate your opinion
A lot of foreclosures (especially those in CA), don't go to the auction block, you'd get your money back, eventually. Bankruptcies, lawyers, title problems, etc, delay auctions. The upside is... you'll have a better chance of negotiating creative settlements with the owner.
I would do it!
I've never done this b4 though.
Well there are a few different ways to look at this:
1. Paper investing
2. Real estate investing
If your goal is paper investing I don't have a whole lot of prospective because this isn't what I do.
But if your goal is to get a backdoor into actually owning these properties, I would analyze the properties as you would any other property.
Can you get access to them? If not, you'll want to price accordingly.
Strike a deal with the owners? If so you can get into the property much quicker and without foreclosure expense (deed in due of foreclosure). If not, calculate that along with holding costs into your offer.
There is no way you can have a set figure that you can offer on each and every loan. You'll have to look at each property.
I'm assuming this is a local bank. Do they have a lot of loans?
GOOD LUCK
1.) Don't know what state you're in - the first thing you need to find out is the length of the foreclosure process (eg how long it will take you to get the defendants to sale once you've purchased their defaulted lien)
2.) The longer the process, the more of a discount you'll want to require from the lender
3.) By keeping the LTV as low as possible, you'll be able to sell the property at the sale rather than having too high of a judgement which would probably mean you'll have to take the propetry back yourself.
4.)It's a common assumption that a shortsale can be approved for 82% of the value of the property. - that should be your starting point before you start subtracting for holding costs, attorney fees, auction costs etc
5.)remember, the more loans you can buy at once, the deeper a discount a bank will agree to
6.)good luck in your negotiations
Well the devil is always in the details, of course.
How much discount is the bank willing to give to get you to take these non-performing loans off their hands?
Are we talking SFR loans or commercial?
How much experience do you have in managing court cases?
That said I had a buddy who made a living doing these. He was an ex attny who understood the foreclosure process very well.
50% discounts are sorta the normal starting place.
Yes, I think it will be very profitable. It is in fact one of those investment strategies that I have always wanted to pursue, as soon as I run out of leads doing what I do now.
The keys are:
1. LTV of loans--different lenders have different ratios. I don't want seconds from a 120% lender
2. Discount factor-- needs to be significant, but look at the relationship to LTV.
3. Time for foreclosure in your jurisdiction
4. Cost of foreclosure in your jurisdiction
5. Can you cherry pick?
You have little downside risk other than carry costs if you look at LTV, as you get paid back the entire principal with interest and costs.
Consider partnering with an attorney who can handle the foreclosure at no cost in exchange for share of profits.
Also consider whether the bank will finance your purchase at a very attractive rate. They should be willing to convert bad debt to good, but it will impact the discount
I really appreciate your info and feedback.
I'm located in New York City and this is where the loans are too. I'll be talking to an investor and lawyer tomorrow, but if you or somebody you know are in my area and are interested in this deal feel free to contact me.