I wanted to discuss a non-performing note example where the property was occupied and the owners wanted to stay and pay. For me, this is the best situation since I am looking for cash flow and I really don’t want the house back. So let’s dig a little deeper and go through the process and the numbers.
They owed $180,000 on the property and it was worth only $150,000. In other words, they were underwater (hence the picture…lol) or sometimes called upside down. I was able to buy the note for $90,000 or around 60% ITV* (see Chart A below). Since I bought the note at a discount I was able to pass part of the discount onto the homeowner and reduce the principle balance owed by $20,000 (see Chart B below) by offering a loan modification. I also reduced the time to payoff by 50 months and the payment went down as well (see Chart C below).
*ITV = Investment-to-value
SUMMARY: The homeowner was super happy and we now are getting a consistent yield of 14.2% for the NEXT 20+ years secured by real estate! Anyone can get a 10%+ return for a year or two but to get that type of return consistently for 250 months is unprecedented.
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