July 12, 2023 • 23 mins
Have you ever thought about how hidden costs could impact your real estate investments? In our latest episode, Justin Bogard and Richard Thornton unravel the mystery behind non-performing loans, revealing the true implications of owning a real estate note and the importance of correctly pricing a loan based on exit price, yield, and cleanup costs.
If you're a non-performing note buyer, then this episode is a goldmine for you. Our conversation highlights the importance of having an extra pair of eyes to analyze a deal and how having local insights can be a game-changer for your investments. We discuss how crucial it is to have a strong network and trusted local partners to maximize your investment potential. Additionally, we touch on the risks of not having local knowledge and experience, and how it can eat into your profits. We also share more avenues where you can find local insights, such as realtors, city planning departments, and fire departments. Tune in to our captivating conversation and arm yourself with these insightful tips and tricks!
Resources and links discussed:
- Videocast on our YouTube Channel
- ANB Funds Website - https://anbfunds.com
About the Host:
Justin Bogard – Note Investor specializing in performing Residential Real Estate Debt. He finds deals and acquires them for his own portfolio as well as educates investors while walking them through the process of owning a Real Estate Note!
Connect with the Host:
Facebook - bethebank
Twitter - bethebank1
Instagram - bethebankpodcast
American Note Buyers - https://anbfunds.com/
Monthly Broadcast - https://youtube.com/playlist?list=PLzc944w1xydt5aLDrrEPHJhdJeDkBjjD4
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Narator (00:02):
Interested in real estate.
How about wealth?
Well, they go hand in hand, andhere you'll learn all about it.
Welcome to Be The Bank, apodcast where we discuss and
debate the topics centeredaround real estate investing.
Your host, justin Bogart,shares insights into investing
in real estate to create realwealth and passive income for
(00:23):
you and your family.
He'll share stories of realestate investments done right,
walk you through the process ofowning a real estate note and,
most importantly, educate you soyou can Be The Bank.
This is Be The Bank brought toyou by American Notebuyers.
Now here's your host, justinBogart.
Justin Bogard (00:46):
Welcome to episode number 14 of season five
of the Be The Bank podcast.
Today we're actually going tobe talking a little bit about
hidden costs with non-performingloans and the information that
Richard and I will discuss withus, So if that sounds
interesting to you, I would likeyou to stay tuned for more.
Richard Thornton, you are inthe same virtual room as me
(01:18):
right now.
In your presence.
How often does that happen?
Yeah, and I think, are weactually here?
We're here.
Oh wow, look at that.
We're not a virtual clap.
This is the first time we'vebeen in the same room recording
together, so this is quitedifferent.
So anyways, richard, how haveyou been?
Richard Thornton (01:35):
I've been good .
I've been a little bitjet-lagged at the moment, since
I'm out from California.
One does not sleep as well asone would like.
Plus, when you're getting up,you're taking red eyes.
It is what it is.
Justin Bogard (01:49):
Yeah.
So Richard has flown out toIndianapolis to kind of hang out
with uh, with me, go a coupleevents with me here the next
couple of days, and so wedecided to record this podcast
together, since we were in thesame room.
We hadn't really done thatbefore, so fancy that anyways.
Yeah, the weather is is nicehere, it's high 80s and getting
humid, so it's the traditionaljuly weather in indiana, yay, um
(02:14):
.
So today, richard, i know Imentioned that we were going to
be talking about Hidden costswith npls, and so I think this
is a great topic to kind of getinto With folks that have never
invested in non performing loansnpls, just so you know, as our
little acronym we say for nonperforming loans.
And what is a non performingloan?
Well, basically, it's a loanthat hasn't paid in about 90
(02:34):
days or longer, and we considerthat a non performing loan and
those we can buy at a Biggerdiscount because they're not
performing, they don't have anycash flow.
So you're assuming that theborrower is just not going to
pay you, or you have to workWith them to get them to start
paying or remodify the loan, or,lastly, you would go through a
(02:55):
foreclosure process.
And so when you are Buying aloan that's already performing
or already non performing,richard, what are the some of
the things in your experiencenow that, uh, in your own words,
that you can kind of tell usBasically?
how are you going to price itand what you kind of looking in
the back of your mind going Yeah, this, this could cost x y z
(03:17):
right.
Richard Thornton (03:17):
Well, obviously, the biggest thing you
always want to look at is whatdo you think your exit price is
going to be?
Are you going to renovate it oryou're not going to renovate it
?
and, uh, you know, before weget down this road too far?
one thing I'd like to mentionis that, uh, a lot of people
think that there's a lot of npls, uh, post covid, coming down
the line.
(03:37):
Um, i agree with that.
I think there are going to bemore.
I don't think we're going toget this tsunami that we thought
we were going to get, due tosome of the federal programs,
but we are going to see more ofthis product, so it's it's all
um Beneficial for us to knowabout that.
So, when I'm looking atsomething, i'm really pricing Uh
what I think I can get for myeventual sales price, um, and
(04:03):
what I think is a good deal onyield, uh, but I guess, now that
I've been through a number ofthese Uh, i'm starting to really
lower my price.
Actually, um, you're you'regoing to hit the home run.
Hopefully, the home run isgoing to come at some point, but
you really have to look at Um,and this is tough because, more
(04:25):
times than not, you're not atthe site.
Uh, you have to look at whatyour cleanup costs are going to
be.
How much are they actuallygoing to charge you if you have
to clean the, the property out,if it's been trashed, if it
doesn't sail, sail right away,which you're not going to know
You may have to clean it out twoor three times.
So that just happened to one onme.
(04:46):
The fellow I had looked at itto start with said well, the
cleanup cost will be About$3,000.
And it came back and I saidwell, gee, there's a whole lot
more stuff going on in the withmold and whatnot in the in the
basement That we thought yourinitial clean out's going to be
out be about $10,000.
Oh, geez great.
(05:07):
And then I had to before wefinally got everything along as
well as possible.
Um, this was a deed and loo.
You know there was no Uh Bigproblems there, but I found out
that I had to get the yard andall that cleaned out twice
because the local neighbors werenow using it as a dumping yard
(05:27):
And I had a new toilet in thefront yard.
Oh, wow, yeah, lots of fun,right, um, and I had to get my
Deed and Lou drafted And sothere was actual legal costs
there And taxes, back taxes,unpaid taxes, unpaid water bills
(05:48):
, unpaid electric bill, electricand gas bills.
Now I probably spent $5,000,$6,000 on just those right there
And I thought there would besome.
I just this borrower up to thatpoint and this was a very
friendly instance where shecalled me.
She said look, i've had adisabled lady.
(06:10):
I can no longer make thepayments.
Basically, here's the keys andI'll do everything I can.
I got into it and I found outthat she was living in what most
of us would call squalor, on ahouse that Zillow and everybody
else said was worth $130,000.
And I ended up getting $22,000on the sale.
So I took it in the chin quiteheavily on that.
(06:34):
You have to factor as many ofthose things in as you can and
still try and be competitive.
Justin Bogard (06:40):
Yeah.
So you got a lot of greatinformation in there, so let's
unpack that and back that up onedetail at a time.
So the things when you gothrough an unperforming loan and
you're bidding on the loan tobuy it.
Obviously, if you had the magicnumber of exactly what it's
going to cost to fix it, thiswould be easy and everybody
would be do it.
However, that's not the casefor non-performing loans because
(07:01):
, a you know what condition theoutside of the property is and,
b you don't know what conditionthe inside of the property is,
unless you have somebody thathas recent photos of what that
looks like, which is pretty muchslim to none if that's going to
happen.
So you have to anticipate aboutwhat you think it's going to
cost to repair the house or whatyou think it's worth today.
(07:21):
Based on just the outsidepictures, you can look up liens
on the property to see what'sagainst it like property taxes.
So you'll know that You cantalk to the building enforcers
or the codes for the buildingenforcements or any liens.
That way You can find out fromutility companies about how much
that stuff costs.
Some places are harder to getthat information than others, so
(07:44):
you have a good idea of whatthey're behind on.
There's also some hidden things, like Richard mentioned.
When you get inside you don'tknow if you've got a $500
cleanup or you've got a what yousaid about $12,000 cleanup with
the yard and everything.
So you just have to kind of putyour real estate investing hat
on and just understand some ofthose things.
(08:06):
Taxes are greatly different indifferent counties and different
states.
Here in Indiana we were havinga discussion this morning at a
networking meeting with Richardand I were talking about how
taxes in California, propertytaxes, are different here in
Indiana.
Indiana is pretty mild as faras property taxes are concerned.
Typically it's a few percent ofsales price is what taxes are.
(08:27):
Then we have some exemptions ontop of that.
California obviously is muchdifferent and I can let you
speak to that.
So what is taxes in Californiaproperty taxes?
Narator (08:39):
That was my lead in my segue.
Richard Thornton (08:41):
I was teeing it up.
How did you still let you hangthere?
Justin Bogard (08:42):
I was gonna let you, just let you hang, i think.
Richard fell asleep on me.
I think that jet lag reallytook you out, buddy.
I need to get some more coffeein you.
Richard Thornton (08:51):
Well, i mean, you actually bring up a very
good point in terms ofCalifornia, because you've got a
lot of homeowners who have beenin their homes there for years.
There's a proposition calledProp 13, which is near and dear
to a lot of homeowners' hearts,because it limits the increase
to 1% per year.
Well, if you're taking over ahouse that somebody's lived in
(09:15):
for 30 years, the taxes, verywell made, triple.
And so if you go into it andsay, oh, the taxes were only
$4,000, even though you'reowning it a short period of time
, they may be triple what youthought it was gonna be.
And if you're doing anyimprovements, they're gonna do a
(09:36):
reassessment And they're gonnasay, hey, look, it was worth
this, now it's worth this, andso you gotta pay taxes on that
interim period.
So that can really bite you.
Justin Bogard (09:47):
So what I think people would be best to
understand during their duediligence and trying to bid on a
non-performing loan is takingthis stuff into consideration of
what you know.
obviously you have to spendsome money to really dig into
exactly what's going on.
So you make what's called anindicative offer and that offer
is subject to further duediligence, meaning you've done
(10:08):
all your free due diligence andyou feel like this is what I
think it's worth, and then youdive into specifics after that
to figure out exactly right.
what are these liens?
You're gonna run specific lienreports and title reports to
know exactly what's going on Andso you can kind of subtract
those numbers if they were worsethan you thought from your bid.
So that way your net price isreally where you wanna be, which
(10:29):
is probably 65 to 70% of whatas is value today is what your
goal is, just like if you werefixed and flipping a house.
that's kind of the golden ruleis.
you wanna be kind of 70% ofvalue minus kind of expenses and
repairs.
So that way you can have aprofit in there, as we're all in
this game for a profit.
We're not in the game to losemoney, like you know.
(10:50):
unfortunately, that's happenedto you, unfortunately, it's
happened to me.
It's happened to many, manypeople as well.
even in the note space,sometimes things just pop up
that you just you didn't catchduring your due diligence
process and you definitelylearned from it.
So I know I have learned fromit.
It sounds like you know you'velearned a few things from your
St Louis asset that you werejust mentioning, so it's
(11:11):
interesting how you have to bidon these things.
Richard Thornton (11:13):
So yeah, you also have to look at the timing
factor.
I mean, don't be fooled by thepeople that say, oh gee, this is
Texas, it only takes you 30days to foreclose, or oh gee,
it's you know whatever.
I mean in this instance that Ijust went through.
The borrower was very nice.
(11:34):
She called me up.
They said look we're.
You know we can't make thepayments.
We'll be glad to sign it overto you and D to Lou.
And by the time I got the D toLou draft, it got them to sign.
It got everything papered, youknow, sold yada yada soup to
nuts.
We were looking at 120 days.
(11:55):
So you can say, well gee,that's really fast.
Well it is, but I had to paythe taxes for 120 days.
Justin Bogard (12:02):
Yeah.
Richard Thornton (12:04):
You know and carry all those other things,
And so if you're not careful,your profits could get eaten up
very quickly.
Justin Bogard (12:12):
Best advice I can give somebody Richard, i'll let
you weigh in on your thoughtsas well is you really want to
have somebody else that's done?
at least you know 20 or 30 ofthese kind of look over your
shoulder as a second set of eyesand just saying, hey look, i
would be looking out for this, iwould watch out for that.
I don't know anybody that'sdone, anyone that county.
Maybe we ought to ask forsomebody that's done a non
(12:34):
performing loan in this countyof this state, because it really
does help to just know thatinformation.
So just you know, continue togrow your network And I would
say that's the best advice forfirst or second time.
No, no, non performing notebuyers is really to tether
yourself to somebody.
Richard Thornton (12:49):
Yes, and or have boots in the ground that
you really trust.
That's true.
You know somebody.
Maybe you want to say focus onOmaha or maybe Kansas City or
wherever, so you have a localpartner or a local trusted
partner.
Maybe it's going to be acontractor that's potentially
going to get the deal, so helikes working with you or
(13:11):
something like it, he or she, togo, actually go out and look at
it And, if necessary, peek inthe window and find out what the
condition the kitchen is in andall this type of stuff And do
what you can.
Justin Bogard (13:24):
That's legal.
Obviously, don't do anythingillegal, but do what you can.
That's legal.
Once you own the property,obviously you can get in there
and you can secure it.
If it's vacant, it's nonperforming, like.
There are things you can do asa lender.
Don't feel like you can't havecontrol of the property.
If you need to winterize it andno one lives there, you are
able to do that by the statutesinside of the mortgage or deed
of trust agreement.
Whatever you're using, you'reallowed to do that.
(13:46):
So you mentioned a couple ofthings about boots on the ground
.
So what are some other sourcesfor boots on the ground that
somebody may not have?
think of that say, hey, that'sactually a good source for a
person I could find locallythere, because I would say, no
one's going to know everythingand or everybody in every single
city or town, right?
Richard Thornton (14:05):
So you know, i usually call a couple local
realtors and I'll say, look, doyou have a presence in XYZ
market, this neighborhood,whatever it is?
So it's not just if it's KansasCity.
You can't just call up a KansasCity realtor.
You've got to say, gee, are youfamiliar with the Linwood
neighborhood, or whatever, sothey really know that.
(14:26):
Another thing is it doesn'thurt to call the city and the
city planning department.
I came very near to buying ahouse outside of Des Moines,
iowa, for $40,000.
I was going to buy the mortgagefor $40,000.
I called the city and waschatting with some family
(14:48):
planning department and theysaid where is this house?
I questioned it and they turnsout they had a program that they
were going through and buyingup houses that had been vacated
because they had so many in thearea and they're only paying
$12,000 per house and my housewas the house that I was looking
(15:10):
at was actually going to bedemoed within the next couple of
months for $12,000.
I would have taken a huge losson that.
So, somebody who just knows thearea.
Justin Bogard (15:22):
Yeah, that's a good point.
I don't think I've ever talkedto a city planning person.
Fire department they have a lotof those guys are volunteer
firemen and so their full-timeincome is not to be a volunteer
fire person.
They also do handyman work.
It's very common for somebodyin that business to do handyman
(15:44):
work, so they also know thestreet that their fire
department monitors and takescare of that neighborhood.
So it's always good to reachout to the local the closest
maybe police department or firedepartment.
Just ask the question, say, hey,i'm looking to buy this
property in this area.
I'm just curious do you have alot of calls in this area?
(16:04):
If it's police department, areyou getting a lot of crime in
that area?
Like, just ask some questions.
It doesn't hurt, especiallywhen you're buying one at a time
.
You can be very detailed as toyour due diligence on what to do
When you're buying in bulk,when you're buying a tape of
loans.
It's the shotgun approach.
You can't be that detailed onevery single one, otherwise
(16:25):
you'll be spending months doingdue diligence and you'll not get
very far right.
Someone else will take the dealout from underneath you.
Richard Thornton (16:32):
That's true, and I think if you're buying in
bulk, if you're lucky enough tobuy in bulk, you've got to
pretty much assume that you'regoing to have to be in and out
as quickly as possible.
In other words, you're going todo as little renovation on the
property as possible, you'regoing to get in, you're going to
assess it, you're going to findout just what it takes to bring
it up to salability and get ridof it as soon as possible,
(16:56):
which is a whole differentattitude of doing it And you
still have to be careful for allthe things that we mentioned.
You know, on paper, the housethat I talked about earlier
Zillow realtorcom they all saidthe house was worth $130,000 and
my basis was $30,000, and Ithought, hey, i'm easy here.
Justin Bogard (17:20):
I'm cool, right, and you're not looking at the
Zill price going.
It's definitely exactly$130,000.
You're just going.
Okay, they're saying it's$130,000, what's to say,
conservatively, it's like$80,000 or $90,000.
Right.
And then you're like I got$30,000 into it.
Okay, i feel pretty good aboutthis, even if it needs some work
, and sure enough, that's notthe case.
Richard Thornton (17:37):
Right, so that's where boots on the ground
really help, yeah.
Justin Bogard (17:42):
Yeah, all right.
So with non-performing loansthere are.
The question I want to pose toyou is do you attack the due
diligence or the pricing, iguess I should say when you know
that the loan is like goingthrough foreclosure process with
the current note holder, or theloan is just non-performing and
(18:04):
you know you're going to haveto go through the foreclosure
process Like, do you look atthose differently and weigh that
into your calculation?
Richard Thornton (18:11):
Yeah, i mean a lot of people will say if it's
in foreclosure, that's a wholelot better, right?
Yeah, because you know whatyour timeline is going to be,
hopefully, unless they'replaying you somehow Yeah, and
I've got one of those goingright now too.
That's a whole different storyif the borrower is just playing
the court.
But yeah, you have to look atthose factors when you get into
(18:44):
it.
Justin Bogard (18:46):
So you mentioned the borrower.
You know playing the game andone of the games that they can
play and legitimately they cando this and unfortunately
sometimes they have to.
For them or sometimes it's asaving grace is bankruptcy, and
so they can go throughbankruptcy court and the court
can decide whether excuse me themortgage can get thrown out or
(19:08):
not.
Now that's kind of the worstcase scenario.
I don't think I've seen manywhere the mortgage debt was
thrown out.
Typically, if they're able toget some income, they you know
the mortgage is like the forsure thing that they have to pay
.
Maybe they can get their creditcards and stuff wiped out or
possibly car loans.
Typically not.
But yeah, the mortgage stuff istypically always going to be
(19:29):
there and somebody's going tomake sure that the person gets
their money garnished and itgoes towards paying back the
mortgage company, so that thatcan be like a five year process
to have that stuff paid down togo through the bankruptcy part.
But the cool thing aboutbankruptcies that a lot of you
may not know is that there isextra money on the back end that
(19:50):
you don't, that you might notknow about on the surface.
As to looking at the bankruptcynumber, because we have we've
had a couple and we currentlyhave one now and one of our
portfolios And there's like twoor three thousand dollars left
at the back end of it that arestill owed in, like the post
petition type of stuff.
Not only do they owe on theunpaid balance, they owe, you
know, in the late charges andany advances that you make, but
(20:11):
there's also like this back endmoney as well.
So look into that when you'relooking at bankruptcies.
They can be actually reallysweet deals for somebody looking
for some cash flow.
Richard Thornton (20:20):
Right.
So the one another one thatI've got going right now when
I'm saying playing, i'm not alawyer, so I don't know all the
ins and outs of this at all, butmy understanding is is is that
they can the borrower can let itbe in bankruptcy, let you be
get to a certain degree ofdistress, and then come in and
(20:43):
bring a current just before youwould for actually foreclose on
it and then not make paymentsand keep doing that again and
again.
They can do that like threetimes or something like that,
which can greatly increase theamount of time that you're not
getting any return on your money.
Justin Bogard (21:02):
So ultimately, richard just to go back to the
MPL stuff, after we sidetrackedthe MPL is in general in my
experience I've had a lot moresuccesses and I've had failures
and I think it it stems down tohow adamant you are about doing
your due diligence and justchecking for how you're doing
the basic things, but just kindof digging just a little deeper
(21:25):
and finding out the story.
We've we've shared loans onthis podcast about how we've had
private lenders that theirborrowers are just refusing to
pay them but they're more thanhappy to pay us.
We've had situations to whereall we had to do is reach out to
the borrower and work out adeal with them and they're happy
to pay and they're willing topay.
(21:46):
They just couldn't work withthe previous person that was a
note holder.
There's many different reasonswhy if a loan looks bad on paper
or if it sounds bad from thenote seller, it could be a great
opportunity for you.
Just dig just a little bitdeeper on your due diligence and
just find out what's going on.
do your own research, get thefacts.
That's the key tonon-performing loans.
(22:08):
Ultimately, you should havemore successes than failures.
You can't bet a thousand inthis business with
non-performing loans I don'tknow anybody that has unless
you're just able to getliterally pennies on the dollar
for deals, then you can take aswing at several of them like
that without doing much duediligence.
But ultimately you should havemore successes and failures.
Richard Thornton (22:29):
I agree.
Justin Bogard (22:31):
All right, that's about a wrap for today.
This is season number five,episode number 14, the V2Make
Podcast brought to you byAmerican Notebuyers.
We got Richard Thornton andJustin Bogard on the show today.
We will see you guys on thenext one, which we'll be
recording in a couple of weeks.
Everyone have a safe hope.
(22:52):
you have one.
how to safe 4th of July and wewill see you later.
All right, take care.
Narator (23:01):
Thanks for listening to Be The Bank.
We hope you learned somethingfrom today's show.
If you enjoyed this episode,please rate and review us.
Plus, check out our channel onYouTube and follow us on
Facebook and Twitter at Be TheBank, and on Instagram at Be The
Bank Podcast.
Be The Bank is sponsored byAmerican Notebuyers.
Thanks again for listening.
Interested in real estate.
How about wealth?
Well, they go hand in hand, andhere you'll learn all about it.
Welcome to Be The Bank, apodcast where we discuss and
debate the topics centeredaround real estate investing.
Your host, justin Bogart,shares insights into investing
in real estate to create realwealth and passive income for
(00:23):
you and your family.
He'll share stories of realestate investments done right,
walk you through the process ofowning a real estate note and,
most importantly, educate you soyou can Be The Bank.
This is Be The Bank brought toyou by American Notebuyers.
Now here's your host, justinBogart.
Justin Bogard (00:46):
Welcome to episode number 14 of season five
of the Be The Bank podcast.
Today we're actually going tobe talking a little bit about
hidden costs with non-performingloans and the information that
Richard and I will discuss withus, So if that sounds
interesting to you, I would likeyou to stay tuned for more.
Richard Thornton, you are inthe same virtual room as me
(01:18):
right now.
In your presence.
How often does that happen?
Yeah, and I think, are weactually here?
We're here.
Oh wow, look at that.
We're not a virtual clap.
This is the first time we'vebeen in the same room recording
together, so this is quitedifferent.
So anyways, richard, how haveyou been?
Richard Thornton (01:35):
I've been good .
I've been a little bitjet-lagged at the moment, since
I'm out from California.
One does not sleep as well asone would like.
Plus, when you're getting up,you're taking red eyes.
It is what it is.
Justin Bogard (01:49):
Yeah.
So Richard has flown out toIndianapolis to kind of hang out
with uh, with me, go a coupleevents with me here the next
couple of days, and so wedecided to record this podcast
together, since we were in thesame room.
We hadn't really done thatbefore, so fancy that anyways.
Yeah, the weather is is nicehere, it's high 80s and getting
humid, so it's the traditionaljuly weather in indiana, yay, um
(02:14):
.
So today, richard, i know Imentioned that we were going to
be talking about Hidden costswith npls, and so I think this
is a great topic to kind of getinto With folks that have never
invested in non performing loansnpls, just so you know, as our
little acronym we say for nonperforming loans.
And what is a non performingloan?
Well, basically, it's a loanthat hasn't paid in about 90
(02:34):
days or longer, and we considerthat a non performing loan and
those we can buy at a Biggerdiscount because they're not
performing, they don't have anycash flow.
So you're assuming that theborrower is just not going to
pay you, or you have to workWith them to get them to start
paying or remodify the loan, or,lastly, you would go through a
(02:55):
foreclosure process.
And so when you are Buying aloan that's already performing
or already non performing,richard, what are the some of
the things in your experiencenow that, uh, in your own words,
that you can kind of tell usBasically?
how are you going to price itand what you kind of looking in
the back of your mind going Yeah, this, this could cost x y z
(03:17):
right.
Richard Thornton (03:17):
Well, obviously, the biggest thing you
always want to look at is whatdo you think your exit price is
going to be?
Are you going to renovate it oryou're not going to renovate it
?
and, uh, you know, before weget down this road too far?
one thing I'd like to mentionis that, uh, a lot of people
think that there's a lot of npls, uh, post covid, coming down
the line.
(03:37):
Um, i agree with that.
I think there are going to bemore.
I don't think we're going toget this tsunami that we thought
we were going to get, due tosome of the federal programs,
but we are going to see more ofthis product, so it's it's all
um Beneficial for us to knowabout that.
So, when I'm looking atsomething, i'm really pricing Uh
what I think I can get for myeventual sales price, um, and
(04:03):
what I think is a good deal onyield, uh, but I guess, now that
I've been through a number ofthese Uh, i'm starting to really
lower my price.
Actually, um, you're you'regoing to hit the home run.
Hopefully, the home run isgoing to come at some point, but
you really have to look at Um,and this is tough because, more
(04:25):
times than not, you're not atthe site.
Uh, you have to look at whatyour cleanup costs are going to
be.
How much are they actuallygoing to charge you if you have
to clean the, the property out,if it's been trashed, if it
doesn't sail, sail right away,which you're not going to know
You may have to clean it out twoor three times.
So that just happened to one onme.
(04:46):
The fellow I had looked at itto start with said well, the
cleanup cost will be About$3,000.
And it came back and I saidwell, gee, there's a whole lot
more stuff going on in the withmold and whatnot in the in the
basement That we thought yourinitial clean out's going to be
out be about $10,000.
Oh, geez great.
(05:07):
And then I had to before wefinally got everything along as
well as possible.
Um, this was a deed and loo.
You know there was no Uh Bigproblems there, but I found out
that I had to get the yard andall that cleaned out twice
because the local neighbors werenow using it as a dumping yard
(05:27):
And I had a new toilet in thefront yard.
Oh, wow, yeah, lots of fun,right, um, and I had to get my
Deed and Lou drafted And sothere was actual legal costs
there And taxes, back taxes,unpaid taxes, unpaid water bills
(05:48):
, unpaid electric bill, electricand gas bills.
Now I probably spent $5,000,$6,000 on just those right there
And I thought there would besome.
I just this borrower up to thatpoint and this was a very
friendly instance where shecalled me.
She said look, i've had adisabled lady.
(06:10):
I can no longer make thepayments.
Basically, here's the keys andI'll do everything I can.
I got into it and I found outthat she was living in what most
of us would call squalor, on ahouse that Zillow and everybody
else said was worth $130,000.
And I ended up getting $22,000on the sale.
So I took it in the chin quiteheavily on that.
(06:34):
You have to factor as many ofthose things in as you can and
still try and be competitive.
Justin Bogard (06:40):
Yeah.
So you got a lot of greatinformation in there, so let's
unpack that and back that up onedetail at a time.
So the things when you gothrough an unperforming loan and
you're bidding on the loan tobuy it.
Obviously, if you had the magicnumber of exactly what it's
going to cost to fix it, thiswould be easy and everybody
would be do it.
However, that's not the casefor non-performing loans because
(07:01):
, a you know what condition theoutside of the property is and,
b you don't know what conditionthe inside of the property is,
unless you have somebody thathas recent photos of what that
looks like, which is pretty muchslim to none if that's going to
happen.
So you have to anticipate aboutwhat you think it's going to
cost to repair the house or whatyou think it's worth today.
(07:21):
Based on just the outsidepictures, you can look up liens
on the property to see what'sagainst it like property taxes.
So you'll know that You cantalk to the building enforcers
or the codes for the buildingenforcements or any liens.
That way You can find out fromutility companies about how much
that stuff costs.
Some places are harder to getthat information than others, so
(07:44):
you have a good idea of whatthey're behind on.
There's also some hidden things, like Richard mentioned.
When you get inside you don'tknow if you've got a $500
cleanup or you've got a what yousaid about $12,000 cleanup with
the yard and everything.
So you just have to kind of putyour real estate investing hat
on and just understand some ofthose things.
(08:06):
Taxes are greatly different indifferent counties and different
states.
Here in Indiana we were havinga discussion this morning at a
networking meeting with Richardand I were talking about how
taxes in California, propertytaxes, are different here in
Indiana.
Indiana is pretty mild as faras property taxes are concerned.
Typically it's a few percent ofsales price is what taxes are.
(08:27):
Then we have some exemptions ontop of that.
California obviously is muchdifferent and I can let you
speak to that.
So what is taxes in Californiaproperty taxes?
Narator (08:39):
That was my lead in my segue.
Richard Thornton (08:41):
I was teeing it up.
How did you still let you hangthere?
Justin Bogard (08:42):
I was gonna let you, just let you hang, i think.
Richard fell asleep on me.
I think that jet lag reallytook you out, buddy.
I need to get some more coffeein you.
Richard Thornton (08:51):
Well, i mean, you actually bring up a very
good point in terms ofCalifornia, because you've got a
lot of homeowners who have beenin their homes there for years.
There's a proposition calledProp 13, which is near and dear
to a lot of homeowners' hearts,because it limits the increase
to 1% per year.
Well, if you're taking over ahouse that somebody's lived in
(09:15):
for 30 years, the taxes, verywell made, triple.
And so if you go into it andsay, oh, the taxes were only
$4,000, even though you'reowning it a short period of time
, they may be triple what youthought it was gonna be.
And if you're doing anyimprovements, they're gonna do a
(09:36):
reassessment And they're gonnasay, hey, look, it was worth
this, now it's worth this, andso you gotta pay taxes on that
interim period.
So that can really bite you.
Justin Bogard (09:47):
So what I think people would be best to
understand during their duediligence and trying to bid on a
non-performing loan is takingthis stuff into consideration of
what you know.
obviously you have to spendsome money to really dig into
exactly what's going on.
So you make what's called anindicative offer and that offer
is subject to further duediligence, meaning you've done
(10:08):
all your free due diligence andyou feel like this is what I
think it's worth, and then youdive into specifics after that
to figure out exactly right.
what are these liens?
You're gonna run specific lienreports and title reports to
know exactly what's going on Andso you can kind of subtract
those numbers if they were worsethan you thought from your bid.
So that way your net price isreally where you wanna be, which
(10:29):
is probably 65 to 70% of whatas is value today is what your
goal is, just like if you werefixed and flipping a house.
that's kind of the golden ruleis.
you wanna be kind of 70% ofvalue minus kind of expenses and
repairs.
So that way you can have aprofit in there, as we're all in
this game for a profit.
We're not in the game to losemoney, like you know.
(10:50):
unfortunately, that's happenedto you, unfortunately, it's
happened to me.
It's happened to many, manypeople as well.
even in the note space,sometimes things just pop up
that you just you didn't catchduring your due diligence
process and you definitelylearned from it.
So I know I have learned fromit.
It sounds like you know you'velearned a few things from your
St Louis asset that you werejust mentioning, so it's
(11:11):
interesting how you have to bidon these things.
Richard Thornton (11:13):
So yeah, you also have to look at the timing
factor.
I mean, don't be fooled by thepeople that say, oh gee, this is
Texas, it only takes you 30days to foreclose, or oh gee,
it's you know whatever.
I mean in this instance that Ijust went through.
The borrower was very nice.
(11:34):
She called me up.
They said look we're.
You know we can't make thepayments.
We'll be glad to sign it overto you and D to Lou.
And by the time I got the D toLou draft, it got them to sign.
It got everything papered, youknow, sold yada yada soup to
nuts.
We were looking at 120 days.
(11:55):
So you can say, well gee,that's really fast.
Well it is, but I had to paythe taxes for 120 days.
Justin Bogard (12:02):
Yeah.
Richard Thornton (12:04):
You know and carry all those other things,
And so if you're not careful,your profits could get eaten up
very quickly.
Justin Bogard (12:12):
Best advice I can give somebody Richard, i'll let
you weigh in on your thoughtsas well is you really want to
have somebody else that's done?
at least you know 20 or 30 ofthese kind of look over your
shoulder as a second set of eyesand just saying, hey look, i
would be looking out for this, iwould watch out for that.
I don't know anybody that'sdone, anyone that county.
Maybe we ought to ask forsomebody that's done a non
(12:34):
performing loan in this countyof this state, because it really
does help to just know thatinformation.
So just you know, continue togrow your network And I would
say that's the best advice forfirst or second time.
No, no, non performing notebuyers is really to tether
yourself to somebody.
Richard Thornton (12:49):
Yes, and or have boots in the ground that
you really trust.
That's true.
You know somebody.
Maybe you want to say focus onOmaha or maybe Kansas City or
wherever, so you have a localpartner or a local trusted
partner.
Maybe it's going to be acontractor that's potentially
going to get the deal, so helikes working with you or
(13:11):
something like it, he or she, togo, actually go out and look at
it And, if necessary, peek inthe window and find out what the
condition the kitchen is in andall this type of stuff And do
what you can.
Justin Bogard (13:24):
That's legal.
Obviously, don't do anythingillegal, but do what you can.
That's legal.
Once you own the property,obviously you can get in there
and you can secure it.
If it's vacant, it's nonperforming, like.
There are things you can do asa lender.
Don't feel like you can't havecontrol of the property.
If you need to winterize it andno one lives there, you are
able to do that by the statutesinside of the mortgage or deed
of trust agreement.
Whatever you're using, you'reallowed to do that.
(13:46):
So you mentioned a couple ofthings about boots on the ground
.
So what are some other sourcesfor boots on the ground that
somebody may not have?
think of that say, hey, that'sactually a good source for a
person I could find locallythere, because I would say, no
one's going to know everythingand or everybody in every single
city or town, right?
Richard Thornton (14:05):
So you know, i usually call a couple local
realtors and I'll say, look, doyou have a presence in XYZ
market, this neighborhood,whatever it is?
So it's not just if it's KansasCity.
You can't just call up a KansasCity realtor.
You've got to say, gee, are youfamiliar with the Linwood
neighborhood, or whatever, sothey really know that.
(14:26):
Another thing is it doesn'thurt to call the city and the
city planning department.
I came very near to buying ahouse outside of Des Moines,
iowa, for $40,000.
I was going to buy the mortgagefor $40,000.
I called the city and waschatting with some family
(14:48):
planning department and theysaid where is this house?
I questioned it and they turnsout they had a program that they
were going through and buyingup houses that had been vacated
because they had so many in thearea and they're only paying
$12,000 per house and my housewas the house that I was looking
(15:10):
at was actually going to bedemoed within the next couple of
months for $12,000.
I would have taken a huge losson that.
So, somebody who just knows thearea.
Justin Bogard (15:22):
Yeah, that's a good point.
I don't think I've ever talkedto a city planning person.
Fire department they have a lotof those guys are volunteer
firemen and so their full-timeincome is not to be a volunteer
fire person.
They also do handyman work.
It's very common for somebodyin that business to do handyman
(15:44):
work, so they also know thestreet that their fire
department monitors and takescare of that neighborhood.
So it's always good to reachout to the local the closest
maybe police department or firedepartment.
Just ask the question, say, hey,i'm looking to buy this
property in this area.
I'm just curious do you have alot of calls in this area?
(16:04):
If it's police department, areyou getting a lot of crime in
that area?
Like, just ask some questions.
It doesn't hurt, especiallywhen you're buying one at a time
.
You can be very detailed as toyour due diligence on what to do
When you're buying in bulk,when you're buying a tape of
loans.
It's the shotgun approach.
You can't be that detailed onevery single one, otherwise
(16:25):
you'll be spending months doingdue diligence and you'll not get
very far right.
Someone else will take the dealout from underneath you.
Richard Thornton (16:32):
That's true, and I think if you're buying in
bulk, if you're lucky enough tobuy in bulk, you've got to
pretty much assume that you'regoing to have to be in and out
as quickly as possible.
In other words, you're going todo as little renovation on the
property as possible, you'regoing to get in, you're going to
assess it, you're going to findout just what it takes to bring
it up to salability and get ridof it as soon as possible,
(16:56):
which is a whole differentattitude of doing it And you
still have to be careful for allthe things that we mentioned.
You know, on paper, the housethat I talked about earlier
Zillow realtorcom they all saidthe house was worth $130,000 and
my basis was $30,000, and Ithought, hey, i'm easy here.
Justin Bogard (17:20):
I'm cool, right, and you're not looking at the
Zill price going.
It's definitely exactly$130,000.
You're just going.
Okay, they're saying it's$130,000, what's to say,
conservatively, it's like$80,000 or $90,000.
Right.
And then you're like I got$30,000 into it.
Okay, i feel pretty good aboutthis, even if it needs some work
, and sure enough, that's notthe case.
Richard Thornton (17:37):
Right, so that's where boots on the ground
really help, yeah.
Justin Bogard (17:42):
Yeah, all right.
So with non-performing loansthere are.
The question I want to pose toyou is do you attack the due
diligence or the pricing, iguess I should say when you know
that the loan is like goingthrough foreclosure process with
the current note holder, or theloan is just non-performing and
(18:04):
you know you're going to haveto go through the foreclosure
process Like, do you look atthose differently and weigh that
into your calculation?
Richard Thornton (18:11):
Yeah, i mean a lot of people will say if it's
in foreclosure, that's a wholelot better, right?
Yeah, because you know whatyour timeline is going to be,
hopefully, unless they'replaying you somehow Yeah, and
I've got one of those goingright now too.
That's a whole different storyif the borrower is just playing
the court.
But yeah, you have to look atthose factors when you get into
(18:44):
it.
Justin Bogard (18:46):
So you mentioned the borrower.
You know playing the game andone of the games that they can
play and legitimately they cando this and unfortunately
sometimes they have to.
For them or sometimes it's asaving grace is bankruptcy, and
so they can go throughbankruptcy court and the court
can decide whether excuse me themortgage can get thrown out or
(19:08):
not.
Now that's kind of the worstcase scenario.
I don't think I've seen manywhere the mortgage debt was
thrown out.
Typically, if they're able toget some income, they you know
the mortgage is like the forsure thing that they have to pay
.
Maybe they can get their creditcards and stuff wiped out or
possibly car loans.
Typically not.
But yeah, the mortgage stuff istypically always going to be
(19:29):
there and somebody's going tomake sure that the person gets
their money garnished and itgoes towards paying back the
mortgage company, so that thatcan be like a five year process
to have that stuff paid down togo through the bankruptcy part.
But the cool thing aboutbankruptcies that a lot of you
may not know is that there isextra money on the back end that
(19:50):
you don't, that you might notknow about on the surface.
As to looking at the bankruptcynumber, because we have we've
had a couple and we currentlyhave one now and one of our
portfolios And there's like twoor three thousand dollars left
at the back end of it that arestill owed in, like the post
petition type of stuff.
Not only do they owe on theunpaid balance, they owe, you
know, in the late charges andany advances that you make, but
(20:11):
there's also like this back endmoney as well.
So look into that when you'relooking at bankruptcies.
They can be actually reallysweet deals for somebody looking
for some cash flow.
Richard Thornton (20:20):
Right.
So the one another one thatI've got going right now when
I'm saying playing, i'm not alawyer, so I don't know all the
ins and outs of this at all, butmy understanding is is is that
they can the borrower can let itbe in bankruptcy, let you be
get to a certain degree ofdistress, and then come in and
(20:43):
bring a current just before youwould for actually foreclose on
it and then not make paymentsand keep doing that again and
again.
They can do that like threetimes or something like that,
which can greatly increase theamount of time that you're not
getting any return on your money.
Justin Bogard (21:02):
So ultimately, richard just to go back to the
MPL stuff, after we sidetrackedthe MPL is in general in my
experience I've had a lot moresuccesses and I've had failures
and I think it it stems down tohow adamant you are about doing
your due diligence and justchecking for how you're doing
the basic things, but just kindof digging just a little deeper
(21:25):
and finding out the story.
We've we've shared loans onthis podcast about how we've had
private lenders that theirborrowers are just refusing to
pay them but they're more thanhappy to pay us.
We've had situations to whereall we had to do is reach out to
the borrower and work out adeal with them and they're happy
to pay and they're willing topay.
(21:46):
They just couldn't work withthe previous person that was a
note holder.
There's many different reasonswhy if a loan looks bad on paper
or if it sounds bad from thenote seller, it could be a great
opportunity for you.
Just dig just a little bitdeeper on your due diligence and
just find out what's going on.
do your own research, get thefacts.
That's the key tonon-performing loans.
(22:08):
Ultimately, you should havemore successes than failures.
You can't bet a thousand inthis business with
non-performing loans I don'tknow anybody that has unless
you're just able to getliterally pennies on the dollar
for deals, then you can take aswing at several of them like
that without doing much duediligence.
But ultimately you should havemore successes and failures.
Richard Thornton (22:29):
I agree.
Justin Bogard (22:31):
All right, that's about a wrap for today.
This is season number five,episode number 14, the V2Make
Podcast brought to you byAmerican Notebuyers.
We got Richard Thornton andJustin Bogard on the show today.
We will see you guys on thenext one, which we'll be
recording in a couple of weeks.
Everyone have a safe hope.
(22:52):
you have one.
how to safe 4th of July and wewill see you later.
All right, take care.
Narator (23:01):
Thanks for listening to Be The Bank.
We hope you learned somethingfrom today's show.
If you enjoyed this episode,please rate and review us.
Plus, check out our channel onYouTube and follow us on
Facebook and Twitter at Be TheBank, and on Instagram at Be The
Bank Podcast.
Be The Bank is sponsored byAmerican Notebuyers.
Thanks again for listening.
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