There are many ways to make money in real estate, but perhaps one of the less well known ways is investing in distressed mortgages, also known as real estate “notes”. These are delinquent loans where the borrower has stopped making payments and the property is in some stage of the foreclosure process. In some states this can take years owing to the backlog caused by the foreclosure crisis which began in 2008. Working with the individual borrowers to modify their loans is time consuming process that banks aren’t set up to do. Instead the banks are willing to sell large portfolios of these mortgages at deep discounts to specialty companies who raise money from investors to buy the notes, and attempt to get them reperforming. When done properly, it’s a rare win-win-win situation where a homeowner gets a new affordable payment, the note company gets a profitable asset, and investors can get a high return on their money.
Dave Van Horn is president of PPR Note Company which stands for partners for payment relief. He is going to give us an inside view of the distressed mortgage note business, and how you can invest in one of his funds to get that high yield we all want. Enjoy!
My provider has just freshly renovated the home after acquiring it at a significant discount in an off market transaction. The property was distressed and got a complete makeover as detailed in Hassle Free Rentals with a new roof, HVAC, plumbing, etc. This is all designed to minimize the likelihood of any major repairs for the first few years of ownership. Once a well screened tenant is placed, our group will have the option to purchase the home at a price where the turnkey provider makes a profit, but still provides good cashflow for us. That’s why it is so key to get the property at a deep discount.
So did we pick it up? Watch and see.
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Kenyon Meadows MD interviews Jorge Newberry CEO and founder of American Homeowner Preservation (AHP). AHP raises money from investors and buys up distressed mortgages from banks at deep discounts often in low income neighborhoods. They then work with the borrower to come up with a financial solution to keep them in their home. This often includes writing off several thousand dollars of debt, lowering interest rates and extending the term of the loan. Because the mortgage are acquired at such deep discounts, American Homeowner Preservation has the ability to offer these substantial modifications while still paying attractive returns to investors in the 12% range. Additionally the investment minimum is just $100, making it an incredibly affordable way to participate in in this alternative real estate asset while stabilizing neighborhoods.
We talk about the lingering aftermath of the mortgage crisis, and delve into a case study of a borrower who was able to stay in their home after an AHP modification.