In todays email:

• 💬 State of the market: Is it a buyer’s or seller’s market?

• 👀 Featured Video: Paperwork and process for buying notes.

• 🤑 Show me the money: Note deal in Virginia makes 40.3% ROI.

• 🥶 Cool Tools: Simple ways to transfer large files for free.

State of Real Estate

Is It A Buyer’s Or Seller’s Market?

The strength of the housing market continues and the inventory remains low. Home buyers are not finding the deals they had expected in 2023 so far. Even though inventory has increased from a year ago in most of the markets, it is still well blow the levels before Covid. Home prices have come down in some places but only around 2-5% and when compared to large increases over the past 3 years it is relatively small. Home prices are still 20% or 30% higher than they were three years ago in most areas.

Even though the pool of buyers is smaller than it was a year ago, there is still a lot of competition over relatively few homes and many houses are still selling at or above asking price (but certainly not like the frenzy in the past 2 years). First time home buyers having the hardest time and 2023 is not going to bring much relief to those looking to become a homeowner for the first time.

The housing market does not seem to be as sensitive to interest rates as most people predicted and the presumption that the housing market will live or die with rates does not seem to be true. I read (story by Lisa Sturtevant, PhD in Bright MLS) where 50% of buyers said they were going to buy regardless of rates and about 20% bought with cash (see chart below). Many buyers have seemed to have accepted current mortgage rates as the new normal with rates in the 6 to 7% range this year. Mortgage rates might not be as important as conventional wisdom suggests. Now if rates rise to the 8-10% range I think all bets are off and the market will drop quickly.

Bright survey (story by Lisa Sturtevant, PhD) indicated that more than a large percent of the homes sold recently in the Mid-Atlantic were rental properties, vacation/second homes, or investment properties (see 2nd chart below). Look for this segment to drive inventory growth in some markets.

The housing market remains in a period of transition and sellers seem to have the advantage at least right now but that could change quickly. The markets will hopefully be more balanced by end of 2023, but there will be variability across locations. It comes down to the old adage...location, location, location!

Featured Video 

Paperwork and Process For Buying Notes

5 Step Process

1. Decide on the note to buy.

2. Review and sign note sale agreement (NSA).

3. Wire funds.

4. Receive and review collateral documents.

5. Setup servicing.

Step 1: Decide on the note to buy

See prior newsletter 3 (link below) titled WAYS TO MAKE PASSIVE INCOME (March 1, 2023) where we discuss “The 10 main factors to consider when buying performing notes”

https://newsletter.incomestacker.com/p/ways-to-make-passive-income

Step 2: Review and sign note sale agreement (NSA).

The NSA is also known as:

• LSA (Loan Sale Agreement)

• LPA (Loan Purchase Agreement)

• SA (Sale Agreement)

• MNPA (Mortgage Note Purchase Agreement)

• APA (Asset Purchase Agreement)

A NSA is different that a PSA used when buying a house. The NSA contains information pertinent for a note purchase.

What information does the NSA contain?

• Parties to the transaction

• Price of note and closing and cut-off dates

• How collateral docs transfer and when

• Servicing requirement information

• Seller representations and warrants

• Buyers representations and warrants

• Governing laws

• Exhibit showing asset location, UPB, sales price, etc

• Wiring instructions

Step 3: Wire funds

Funding usually occurs within 1-3 days from the date of signing the NSA.

The wiring instructions contains:

• Bank name and address

• Account name

• Wire routing number

• Account number

• Reference information to be included on wire (loan#, address)

Step 4: Receive and review collateral documents.

What should the collateral package contain?

• Original note

• Original deed of trust or mortgage

• Original chain of assignments

• Notarized assignment from seller to your entity

• Original note endorsements or allonges

• Original title policy

Step 5: Setup servicing.

Overview of servicing:

• Standard loan servicing (performing notes)

  • Costs $20-40/month (no escrow)

  • Costs $35-50/month (with escrow)

• Specialty loan servicing (non performing)

  • Cost $40-$100/month (loss mitigation, BK, FC)

• Servicer sends out RESPA letters - Hello and Good Bye Letters required by law.

• Benefits of servicing:

  • Internet access to view your account(s)

  • Servicer applies payments

  • Servicer apply late fees

  • Servicer computes the interest and principal

  • Servicer prepares year end statements

  • Servicer processes payments via check, ACH, online, etc.

  • Servicer does escrow management

  • Servicer does tax reporting like year end 1098s

Show Me The Money 

Note deal in Virginia - 40.3% ROI

I wanted to take a moment and dissect a mortgage note deal in Williamsburg Virginia where the property owner had vacated the property. Typically, we like to buy notes with occupied homes and work with the homeowner to get them reperforming so we can collect the cash flow. However, upon our due diligence we saw high potential for profit in this deal which was a vacant property and so we purchased the note.

The foreclosure process in Virginia is very quick. It is a deed of trust state
with a non-judicial foreclosure process which means there is a “power of sale” clause in the security instrument. The power of sale is a provision commonly found in a deed of trust, which is a legal document used to secure a loan on a property. It grants the lender the authority to sell the property in the event a borrower defaults on the loan. The power of sale is an alternative to foreclosing through a court process (i.e. judicial foreclosure like in a mortgage state) providing a more streamlined and expedited method for the lender to recover their loan amount. Remember the homeowner left and did not want to return, however in order to get clear title we needed to foreclose and wipe off the junior liens and get the deed. (NOTE: Our number one goal is to KEEP people in the homes if at all possible and foreclosure is last resort but in this case they had no desire to stay in house.)

So here are the numbers:

Note Purchase Price: $131,000

Total All In Expenses: $26,100 (Legal Costs: $4,300, Rehab Costs: $11,800, Hold Costs: $3,000, Selling Costs: $7,000)

Property Sales Price: $209,900 (Sold to first time homebuyer getting a conventional loan)

Net Profit: $52,800 or 40.3% ROI in 12 months and 12 days (377 days to be exact).

LOW RISK: The investment to value upon purchase was about 65%.

SECURED: We own the deed of trust which secures the note.

We looked at other exit strategies like selling the house with some form of owner financing or on land contract but got an interested party to buy the house outright within 2 weeks of listing the property. So we took it.... 😃 

Cool Tools

WeTransfer.com and Jumpshare.com are both great platforms to share large files, videos…super fast. Yes you could also upload your files to a cloud storage service like Dropbox but I find it less convenient especially for a short term project.

For example, in WeTransfer (see pic below) you simply upload files, type in the email address you are sending the files to (add title and message if you wish) and click transfer. Done!  Quick and easy. You will then get a notification that you sent the file and a final notification when the receiver opens and downloads the file. Wow..all for free.

Jumpshare is similar but with some added features. Jumpshare combines file sharing, screenshot capture, and video recording - all in one platform. Once cool feature is the ability to drag files to the Jumpshare system tray icon (see pic below) and a shareable link will be copied to your clipboard.

You can preview 200 file formats online. It has a powerful file viewer that can preview all types of files - documents, presentations, spreadsheets, videos, audios, images, and more.

🖐️ IF YOU HAVE A QUESTION, PLEASE RAISE YOUR HAND AND ASK BY SIMPLY REPLYING TO THIS EMAIL.

Last weeks POP QUIZ was…What does statutes of limitations mean?

ANSWER: Statutes of limitations for mortgage liens refer to the legal time limits within which a lender can enforce their rights to collect outstanding debts secured by a mortgage on a property. These statutes vary depending on the jurisdiction and can have different timeframes and rules. These time limits vary depending on what state you are located and typically range from 3 to 10 years. If a lender doesn't take legal action within the specified time limit, they may lose their ability to collect the debt. 

This weeks POP QUIZ: Can I buy a partial note instead of the whole note?

Check out next weeks newsletter for the complete answer.

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