INVESTING IN NOTESThe opportunity: Uncertainty creates opportunity. From an investor’s perspective, the volatility of the stock market and impending fears of inflation are causing many investors to look for other options. The long-term value of real estate is attractive and the historic drop in value has created a significant opportunity in the distressed real estate asset market. Additionally, there are certain markets nationwide which offer stronger pockets of opportunity. Areas in the Midwest and south offer greater opportunity for profit. Love American Properties offers individuals, private investors and institutions the ability to capitalize on the unadvertised sub-prime real estate market, or shadow inventory, by investing in 1st lien non-performing notes (NPN’s) for pennies on the dollar, with the investment secured by the underlying property – a tangible investment. What is a note? A note, in essence, is a promise to pay. In real estate, the note is secured by the mortgage or Deed of Trust, which attaches or ties the property as the collateral for the note. The most common and traditional forms of real estate investing are fix & flip (rehabbing), or buy and hold for rental income with the hope of appreciation. In these cases you own the property and are responsible for all the upkeep, maintenance, and repairs. When you own the note, you are the bank, and the maintenance, repairs and upkeep are the responsibility of the home owner. Owning the note provides the opportunity for passive income; real estate investing without getting your hands dirty. We offer two types of notes: Non-Performing Notes, which are not being paid and are in default. Re-Performing Notes, which went into default, and have been worked out to get the buyer paying again. Why 1st lien NPN’s? First lien NPN’s, typically have a higher price but offer less risk as compared to 2nd lien NPN’s or junior liens. The price for 1st lien notes will vary depending on location and condition of the asset. We source the notes from Hedge Funds, Mortgage Bankers, Mortgage Loan Servicer’s, and Individuals who own the notes. These assets are not on the market (not a FSBO or listed as an REO in the MLS). We focus on Owner-Occupied assets as they offer the greatest return on investment with the greatest number of exit strategies. Is This A Good Thing For Families? The home owner clearly came into difficult times. There may have been a disruption in income, a change in interest rates that made the payment unaffordable or other issues that can be resolved today. We can work with families to keep them in their homes, while creating great returns for you. That is a Win-Win. Why Should You Consider Buying Real Estate Notes? Owning performing or re-performing notes means steady, cash-flow until the note is paid off, or resold, without the responsibilities and costs of being a landlord. Repairs are made by the buyer of the property; you are the bank, no swinging the hammer, using the power saw or painting. There are five (5) main exit strategies with note investing which provides greater flexibility and reduces risk. We focus on 1st lien non-performing and re-performing notes, and with our established relationships with Hedge Funds and Mortgage Bankers, we have a constant flow of assets to choose from. As a nationwide company, we help you diversify your risk by investing in geographic areas that offer you the most attractive opportunities. You can also use a self-directed traditional IRA for tax deferred growth, or a self-directed Roth IRA for tax free growth for you or your children. If your certificate of deposit has become a certificate of disappointment, or your 401k is now a 101k and you are losing sleep at night worrying about your retirement nest egg riding on the whims and fancies of a volatile stock market, diversifying into 1st lien notes secured by real estate (a tangible investment) is something you should consider. Read More
OUR SYSTEMThe first step is to find quality assets from reputable sources. Pools are analyzed as a team with consideration to profit potential, marketability, asset quality, legal review, and exit strategy. We seek to minimize risk by acquiring assets at a price consistent with our desired returns. 1. Quality of assets. We seek to find quality assets in the lower value range, with a market value of $50,000-$150,000. We seek to purchase assets at a discounted purchase price, largely because the market value has fallen below the unpaid balance of the note(s). We prefer to buy occupied homes, which increases the profitability to get the loan quickly re- performing. We also assess exit strategies (forbearance, refinance, mortgage payment relief programs, short sale and deed in lieu of foreclosure). Foreclosure is evaluated as last or worst case scenario. 2. Legal status of asset. We closely review the title, property taxes, bankruptcy status, if applicable, and other legal documents to make sure we have a clear and clean title, free from any title or other legal issues. 3. Price of asset/forecasted return. Each asset must be evaluated for the best exit strategy. Some strategies are more favorable and/or profitable than others. While we prefer to keep the borrower(s) in their home, the best available strategy is considered on a case-by-case basis. 4. Holding time. We estimate that each asset will take approximately 12-18 months to cure. Some will liquidate or resolve faster, others slower. The following table presents a hypothetical illustration of industry liquidation experience. Asset Performance Time Frame on a Pool of 10 Assets
|Number of Assets||2||2||2||2||2|
|Time Frame||Within 3 months||Within 6 months||Within 9 months||Within 12 months||"Tail"|
ANALYZE ASSETSWe believe that risk can be mitigated through diligence and have developed a 3-step evaluation process that assesses: Step 1: Determine Quality In our due diligence period, there are three considerations important to determine the value of the asset. A. Quality of the seller of the asset (reputation and performance of seller) B. Quality of the physical asset (determined by market value, physical inspection of property, as well as market potential) C. Quality of the paper asset (review of legal documents, chains of title, length of non- performance) Step 2: Connecting with the Homeowners Communicating with professionalism and treating borrowers with dignity and respect is one of the keys to our success. We take the time to listen to the borrower and seek to understand their needs and abilities. Many borrowers are pleasantly surprised that a simple win-win solution can be expeditiously achieved. Whether it's an early payoff settlement, refinance, modification, forbearance, deed in lieu, or short sale, we aim to find a solution that works for everyone: for Love American Properties, our investors, and the borrower. In some cases, if the borrower is uncooperative, foreclosure is our unfortunate remaining last option. Step 3: Invest in What We Believe to Be the Most Compelling Opportunities A. Team Discussion and Debate Portfolio Manager, also our industry research analyst, recommends a pool as a "buy option" Provides analysis as to why he thinks it’s a good opportunity Decision-making using partners' experience, we jointly decide to buy, pending due diligence period, where more extensive research is performed. B. Areas of Opportunity are Identified, Based on Assets Available Geographical areas of interest Depressed areas with potential for growth Times of year where deals are opportunities: Specifically Q4 C. Risk Management: Continued Evaluation of Process and Flow Management team keeps open lines of communication Software management tools Outsourcing for maximum efficiency Monitoring of property taxes Umbrella insurance policy insuring assets Servicing vs. self-servicing Boarding Recording of documents File management Read More
JOINT VENTURE WITH USWe seek JV Partners to help us acquire some of the incredible abundance of non-performing real estate notes. We find the deal and do all of the work to get the homeowner repaying their mortgage, or take over the property to sell it quickly. Your position is secured by the underlying property; ideal for a self-directed traditional IRA or a Roth IRA! Love American Properties seeks Private Lenders and Joint Venture Partners to help with the acquisition of select Non-Performing 1st Lien Mortgage Promissory Notes, backed by the underlying property. There are two ways for a partner to Joint Venture with us: 1. As a Private Lender who will loan the funds to purchase the notes for a fixed percentage, plus points. 2. As a Joint Venture Partner who will fund the purchase of the notes and we split all profits 50/50 The Private Lender will make an interest loan to cover all costs of purchasing the note, pay the county real estate taxes, HOA fees and boarding costs with our licensed servicer. The private lender will receive a monthly interest rate on their loan, and when we get to the point of either selling the note after one year of seasoning or getting title and selling the property, we will pay off the loan, and pay them the agreed to points. The Joint Venture Partner will provide all funds to acquire the note, pay the county real estate taxes, HOA fees and boarding costs with our licensed servicer. Any cash flow that comes from either working out a repayment plan with the borrower, or from rents will be split 50/50. After one year we can revisit this situation and continue for another year, or agree to sell either the note or the property. The proceeds will be used to return the entire funding amount and expenses, and the net profit will be split 50/50. A comprehensive wealth-building strategy will always incorporate investments, and many people stick with traditional means of investing such as mutual funds, stocks, bonds, or ETFs. The problem with these investments is that the rate of return is marginal at best, and there is no built-in safety net. When investing in so-called "safe" investments such as funds, you give up all control and pay fund managers a premium to manage a portfolio even if the fund does poorly. None of these investments provide a quick and safe way to grow your net worth. At best, they are slow and safe. Consider becoming a private lender or a Joint Venture Partner. For more information on our Joint Venture Partner/ Private Lender program, please fill out the form below, or call us at the number above. Read More
Do you like Opportunity? Is This A Good Thing For Families?Contact Us
A message from our Manager
Thank you for taking the time to visit our site and discover our story. At Love American Properties our asset management philosophy is based on the belief that all successful asset investing should weigh price and potential. While getting a good price is a key to profitability, each asset portfolio affords its own possibilities that must be weighed. We seek to do our part in this recent economic crisis by helping those borrowers who desire to stay in their home. While most hedge funds seek to obtain the higher asset class, we believe in the lower value asset class, which creates a unique and profitable opportunity. We also aim to make investment opportunities available to those who may not qualify for a typical investment, either because of lack of sufficient liquid capital or low net worth. The capital contribution necessary to invest in distressed assets is lower, thus making investing available to a largely untapped investor base. Our mission is to achieve unrivaled satisfaction to all we engage. From our acquisition partners to our third party vendors, strategic alliances and partnerships we strive to maintain a mutually beneficial and rewarding relationship. To the distressed borrower, we strive to provide a unique and unparalleled experience, through effective communication and dialogue aimed at creating positive solutions that satisfy their needs. To our investors and joint venture partners, we are committed to provide superior service and performance and most important, provide security with their investment and confidence in our firm. Kevin Kruse Manager
Real Estate Notes: A Smart Investment Alternative
The supply of real estate notes available at discounted prices has not dried up yet. "...at the end of 2014, there were still more than 7 million residential homeowners seriously underwater in this country." After three decades of working in different areas of the real estate business, including owning a number of rental properties, the three T’s of landlording, tenants, toilets and trash, were wearing thin on Don DeMarco. The Silver Spring, Maryland-based real estate entrepreneur has seen a lot, making a lot of money and then losing it due to economic downturns. After years in the home improvement, real estate development and then mortgage business, in January 2014, DeMarco decided to retool his real estate career once again and looked for another viable option to make money based on the current state of the market. He found that option with investing in real estate paper. “I’ve always had a desire for real estate and enjoyed working with it,” DeMarco says. “When I saw the downturn in the economy in 2007 and the market just dropped out, I ended up struggling with my business, and in 2010, I ended up filing for bankruptcy and gave up my business.” In the past year, DeMarco has bought 20 non-performing notes. In some cases, he has been able to negotiate loan modifications, while others are in various stages of being foreclosed on. “I wouldn’t say it’s hard. It is time-intensive. No matter if you do all the due diligence yourself, or hire virtual assistants, you want to buy the right assets,” DeMarco explains. “For the right investor, I think it’s a fantastic way to get into the real estate business. It’s not the normal landlord type of scenario.” Why notes? One key reason to focus on buying notes in the present market is simply because there are so many of them out there following the nation’s most recent foreclosure crisis that began in 2006. RealtyTrac reported that, at the end of 2014, there were still more than 7 million residential homeowners seriously underwater in this country, representing 13 percent of all properties with a mortgage. Those underwater homeowners mean the supply of real estate notes available at discounted prices has not dried up yet. Ample supply is one thing, but nationally recognized experts teaching and coaching investors in buying notes point to a more important reason to specialize in notes, instead of purchasing brick-and-mortar real estate: the greater number of exit strategies available to note buyers. “It’s important to educate yourself first, because notes are a completely different animal than just buying a piece of property, fixing it up and selling it, or buying it and renting it out,” says Scott Carson, president of WeCloseNotes.com. “With buying a rental property, that’s the strategy you’re going to go with. With notes, you have more exit strategies,” he says. From a deed in lieu of foreclosure, to cash for keys, loan modification and foreclosure (plus having access to the federal Hardest Hit Funds in states where they are still available) these exit strategies only apply to first mortgages, not second mortgages. “What I love about notes is you go directly to the bank. You’re seeing things six to 12 months ahead of time, depending on the state. The fact is that you’re buying debt well below what a retail investor would pay,” Carson says. “You create a win-win with the homeowner, and more often than not, it turns into a really good yield for us.” Firsts versus seconds. When it comes to the pecking order of mortgages, the first (or senior mortgage) sits in the driver’s seat. Should the borrower default on the first, then any junior liens (such as second mortgages) are in serious trouble. So, as far as investors are concerned, in today’s market, buying the first puts the investor in the best position possible. “Firsts are always easier to raise capital for,” Carson notes. “Plus, when you’re in first position, you have more exit strategies, and there is five times more inventory out there. The concern with buying seconds is you’re worried about the first becoming non-performing and wiping you out.” Investing in seconds fell out of popularity with investors after property values dropped precipitously due to the market crash in 2006. Any market left today for seconds can only be found in regions of the country where property values are high and home equity is plentiful, such as in California, notes Donna Bauer, president of The Original NoteBuyer LLC. Great potential with non-performing notes. Given that the nation’s housing market is still in recovery mode from the Great Recession, investors looking for different investment vehicles are turning to real estate paper – particularly buying non-performing notes. Investors usually buy buy them from banks, hedge funds and private equity firms that are willing to sell them off at significant discounts. As the name suggests, non-performing notes are first mortgages secured by real estate where the borrowers have stopped making their monthly payments for various reasons. As mentioned above, investors looking to buy no-performing notes have a variety of strategies available to them. Once the note is purchased, the investor now owns the note, literally becoming the bank. As such, the investor can then approach the borrower directly and offer to work out a loan modification, or in the worst-case scenario, the investor can always foreclose, and either sell or keep the house as a rental. “The reason people buy [non-performing notes] is twofold: to acquire the property - use the note as leverage to either negotiate a deed in lieu, or foreclose and take the property,” Bauer says. “The second strategy is to create a very high-yielding passive investment. In that case, you do a forbearance and modify the mortgage. You restructure to an amount the borrower can afford to pay. Once it’s seasoned for 12 months, then it can be sold as a reperforming note.” As Bauer explains it, the larger banks sell their notes to hedge funds, who then split them up and sell pools of notes to smaller hedge funds and private equity firms, which is where the mom-and-pop investors buy them either in pools, or as one-offs. A “one off” is either a single note or a small pool of notes (maybe 10 or less) purchased from small hedge funds and private equity firms. In other words, the investor can actually cherry-pick the notes he or she is interested in buying. “A lot of people got caught up in the market. Through no fault of their own, they ended up in default. They may have wound up upside down on the house and froze and didn’t know what to do. When you go to the homeowner, you have to assess what their situation is,” Bauer says. Whether the investor’s goal is to build up a high-yield portfolio of passive investments, or a portfolio of rental properties, or a combination of both, working with financially distressed borrowers who are not paying their mortgages holds a great potential upside, but not without risk. “Notes do offer the potential for a good rate of return on investment, but investors going into the note-buying business must go in with their eyes wide open, because not all note deals are winners. Just like buying homes in a bidding war or online auction, the best protection is doing the most thorough due diligence possible on every deal,” says Rick Sharga, executive vice president at Auction.com. Joel Cone is a southern California-based freelance business writer who specializes in the fields of real estate, economics and law. His articles have appeared both in print and online for many publications including California Real Estate, OC Metro, GlobeSt.com and The Los Angeles Daily Journal. He is also a contributor to Auction.com.
The first step is to find quality assets from reputable sources. Pools are analyzed as a team with consideration to profit potential, marketability, asset quality, legal review, and exit strategy. We seek to minimize risk by acquiring assets at a price consistent with our desired returns. 1. Quality of assets. We seek to find quality assets in the lower value range, with a market value of $50,000-$150,000. We seek to purchase assets at a discounted purchase price, largely because the market value has fallen below the unpaid balance of the note(s). We prefer to buy occupied homes, which increases the profitability to get the loan quickly re- performing. We also assess exit strategies (forbearance, refinance, mortgage payment relief programs, short sale and deed in lieu of foreclosure). Foreclosure is evaluated as last or worst case scenario. 2. Legal status of asset. We closely review the title, property taxes, bankruptcy status, if applicable, and other legal documents to make sure we have a clear and clean title, free from any title or other legal issues. 3. Price of asset/forecasted return. Each asset must be evaluated for the best exit strategy. Some strategies are more favorable and/or profitable than others. While we prefer to keep the borrower(s) in their home, the best available strategy is considered on a case-by-case basis. 4. Holding time. We estimate that each asset will take approximately 12-18 months to cure. Some will liquidate or resolve faster, others slower. The following table presents a hypothetical illustration of industry liquidation experience.
The "tail" is defined as the recognition of an asset after purchase that is best to exit today, even at
potentially a loss, rather than incur an additional loss if maintained for a longer duration. Criteria
used to recognize a “tail” asset include, but are not limited to:
1. No contact made with borrower in initial 60 days;
2. Expected hard fought defense in judicial foreclosure;
3. Determined that the purchase price exceeded potential value.
Our goal is to identify the "tail" early on and take immediate action to move the asset so it does
not extend far beyond the 12 month mark. Foreclosure time frames in many judicial foreclosure
states can be 10+ months. A quick identification of these assets is critical.
|Number of Assets||Time Frame|
|2||Within 3 months|
|2||Within 6 months|
|2||Within 9 months|
|2||Within 12 months|