I have several mortgage notes on properties in different stages of the foreclosure process. I purchased the debt on the property (i.e. the mortgage note) and all borrowers were deceased and were over 12 months in arrears and none of the family members had any interest in keeping the property.
So what happens when the property goes to the foreclosure auction sale? Either the property reverts back to the lender as an REO (Real Estate Owned) or a 3rd party investor that buys the property at auction for the amount of the opening bid or higher.
MISSISSIPPI FORECLOSURE AUCTION
For example, on April 21 one of my mortgage notes in Mississippi went to auction and nobody bid on the property even though the opening bid was 20% lower than the value of the property. So now I, as the mortgage note owner, own that property. We are now in the process of light rehab and reviewing possible exit strategies such as described below:
Exit 1: Sell outright - return 20-35%
Exit 2: Owner finance - return 12-20%
Exit 3: Lease Option - return 10-15%
My opening bid as the lender can be the full amount (also called full debt bid) or a “specified bid” which is less than the full debt. The opening bid is calculated based on several factors like the value of the property and possible exit strategies. We will cover the exit strategies in another newsletter.
IOWA FORECLOSURE AUCTION
I had another property go to auction on April 25 in Iowa and set the opening bid at around 75% of the value in hopes of having it sold at the auction to a 3rd party investor. The property ended up selling for $21,000 profit (see details below). The returns vary, but I am looking for 25%+ for auction sales. The benefits of the auction sale are less work as compared to getting the house back (no clean outs, no rehabbing, no property management, etc.) and second helps me to recapitalize in order to fund other investments.
Note price: $64,000
Expenses: $3,000
Winning bid: $88,000
Profit: $21,000
How long: 9 months to completion
RETURN: 32.8% ROI, 43.8% IRR
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