As an investor- I’m frustrated and confused of what is going on in the real estate market. As a seller, I couldn’t be happier. Inexperienced buyers are out bidding each other with the expectation of appreciation and riches.
In early 2017, I started to get nervous about the market. I didn’t want to repeat the same mistakes I made in the past, like being over leveraged right before the market crash of 2008. Therefore, I convinced my investors to sell all our properties and take the tax hit. Now we have a new problem.
What to do with the money we made?
In my opinion, we had a great market to invest in real estate from 2009-2016. Unfortunately, that ship has sailed. If your Realtor or financial planner tells you to buy now, it’s probably because they have commission breath on their lips.
So where do you hide your money in a crowded real estate and stock market?
The answer is to move up the food chain and look in a completely different direction. This is where I stumbled upon mortgage note investing in early 2017 and I wish I had learned about it sooner. In this type of investing, banks sell their loans that are backed by real estate when the borrower starts to miss payments. This is also known as a non-performing mortgage. They sell these loans for 20-50% of what the property is worth. Why?
Banks are in the lending business, not the landlord or foreclosure business. It’s easier for them to write off the bad debts, than to spend the time figuring how to make it right.
The 2019 outlook points to this being a breakout year for investing in this asset class as mortgage defaults and foreclosures are on the rise again. California is not only the place to look for fashion trends but real estate trends as well. Currently, Southern California is in a recession with homeowners scrambling to sell before the panic spreads. Link for article.
I have spent almost 20 years trying to find the right investment. The sweet spot between risk and reward. I believe that investing in mortgage notes provides the best risk reduction and the best return on my money. Our fund targets investments that can provide 12-18% returns and its not uncommon to reach much higher.
My plan since entering the workforce was financial freedom. I hate that nagging stressful feeling that I have to make a living every morning. I want to be working each day on replacing my income with investments that create cash flow. Investments that are not dependent on the volatile swings of the stock market.
I personally have heard enough news about China and Trump. I can't make soybeans go up in value, but I can help a family in Middle America save their home.
What attracted me to mortgage note investing is the ability to protect the downside. Protecting the downside is one of the first rules of investing and one that I neglected back in 2008.
I’m a visual learner, this example below helped me understand what I was doing and why buying mortgages is better than buying the real estate directly.
100% Fair Market Value (FMV)
Before I learned about this side of the business, I was always paying close to the Fair Market Value (FMV). As the top arrow shows, it’s where you find properties on the Multiple Listing Service (MLS) and fight the competition for the deal. It is what I did from 2001-2006, which was extremely risky since I was also heavily leveraged.
80% Loan to Value (borrower/homeowner)
We want the borrowers to be 80% or less of the loan to value (LTV). Therefore, we target loans where the borrower also has equity. This way the borrower/homeowners are vested in the property and are more willing to cooperate with creating a solution.
I don’t know anyone that wants to kick families out of their home. The best-case scenario is being able to provide a solution that helps families stay and provides a return to our investors. When we are able to receive a discount on the loan, we are more flexible than the bank. For example, we can approve a short sale in a day where it could take months.
Even with our firm’s flexibility compared to a traditional bank, some homeowners are unwilling to discuss solutions. If the only situation available is foreclosure than our network of experienced lawyers, loan services, Realtors, and loss mitigation team are prepared to act. In the case of foreclosure, our risk is reduced since we now have unlocked the total equity of the property.
Total Investment of Less than 60% of After Repair Value (ARV)
If I have to foreclose, then I expect that the property will need to be updated before placing on the market. We budget approximately 20-30% of the value back into the property for rehab expenses. This leaves us with a large equity position that allow us to either sell for profit or create another mortgage with the property.
If property values in the area experience a downturn, we have a large cushion of equity to protect our investment.
Mortgage loan pool acquisition (20-40%)
After selling our rentals for top dollar, we needed a place to safely invest our money. My investors and myself, have found this to be the best way to hedge against the risks in the open market. If I am able to acquire loans at 20-40% of the value, I’m about as safe as I can get in real estate. This is why my money is in this fund as well.
Most investors ask "How does one find these opportunities?" Banks and hedge funds want to sell in volume. This is the reason for my investment fund. We need to be able to buy in bulk and by pooling our resources together with like-minded investors we can accomplish this goal.
Stocks and real estate markets are poised for a correction. The smart money is pulling billions out of the stock market.
If you are concerned about how to protect your money in 2019, then email me today. We have a plan that doesn't require risky speculation, appreciation, or leverage to provide an above average return on your investment.
Are you curious of how this works with real life examples? I can email you a copy of our plan for 2019. We show you what happened behind the scenes during the last housing bubble and how you can be prepared for what is to come.
We are opening our second capital raise for $1M. If you are an accredited investor you can join with as low as $25,000. We plan to be ready to deploy this capital in the first quarter of 2019. Call or email me to learn more.
Email me today at Kyle@expandcap.com or call me at 248-955-8222.
Kyle Zimpleman, Managing Member
We identify opportunities to acquire pre-foreclosure, bank owned, and performing loans at pennies on the dollar from our network of banks and hedge funds. This fund provides a vehicle for investors to participate in off-market real estate long before its available to the public. This translates into above average returns to our investors and provides peace of mind that their investments are secured by equity in real estate.