How to Develop Winning Bid Strategies for Non-Performing Notes | Real Estate Notes Show

Episode: Nathan Turner & Dave Putz - Note Investor's Bidding strategies Dave's Goals and Plans: - Buys properties in $50,000 to $150,000 property value range to avoid sophisticated borrowers with attorneys - Recently launched a bid calculator and conducted a webinar on CFD equity calculations - Focuses on first position loans only, avoids second position deals - Sticks with notes rather than taking back properties when possible Nathan's Goals and Plans: - Lives outside Montreal but invests exclusively in the United States since 2006 - Started investing in non-performing notes in 2010 and finds them easier and cleaner than property flipping - Buys contracts for deed (CFDs) in $50,000 to $250,000 property value range depending on state - Avoids New England states (Maine, Connecticut, New Hampshire, New York, New Jersey) due to unfavorable CFD recognition and foreclosure processes - Had a major loss this year when borrower went dark, property had city liens, and selling would result in a loss Key Recommendations: - Target lower property value ranges ($50k-$150k) to avoid borrowers with legal resources who will fight foreclosure - Require borrower communication - if borrower stops paying without explanation, action must be taken; encourage them to call with their situation - Research state-specific CFD recognition and foreclosure processes before investing - some states don't recognize CFDs or treat them as mortgages - Stick to first position notes to avoid complications and maintain stronger legal standing - Analyze deals regularly to identify patterns - problematic deals usually occur when properties are taken back Topics Discussed: - Contracts for Deed (CFDs) vs.

traditional mortgages and non-performing notes - Geographic considerations and state-specific legal frameworks for note investing - Borrower sophistication levels and legal risk mitigation strategies - Horror stories and lessons learned from failed deals - Property valuation and equity calculations in note investing - Foreclosure processes across different states - Borrower communication and modification strategies Guest Insights: - Nathan entered non-performing notes by accident after hearing about them at conferences, initially thought it was risky but found it superior to property flipping - Started with a portfolio of 60 properties in 2008 with no operating budget, which led to discovering seller financing and eventually contracts for deed - First deal was 3 notes for $10,000 with balances around $50-60k each against properties worth only $20k - this early success with underwater notes shaped his investment strategy - First time in 2024 experiencing a borrower fight on foreclosure, which occurred in the higher price range, confirming the value of staying in lower price brackets we don't know who we are nathan give me a little briefing of how lee mcdillin is what have you pretty much been doing where are you from so i live just outside of montreal in canada um and to answer the first question i get no i don't do anything in canada everything i do is in the united states um the last thing i bought in canada for properties was in 2006 i was flipping some houses out in western canada but anyway i got into notes uh kind of by accident um i think i like a lot of people that's kind of how we end up here but i i started going to some conferences heard whispers about these non-performing notes and i thought oh that's that sounds super risky gave it my first try in 2010 and went oh this is awesome this is great this is in a lot of ways a lot easier a lot cleaner than properties and so uh the further i go along the more i learn and it's just been a great experience i hope to do it for a long time to come yeah that's awesome man i think uh you know those who are new to space have a lot to learn uh but i also think those experience we're always learning our experience doesn't change or doesn't stop learning do deals stuff like that um typically what kind of deals have you bought i mean you've been doing this for longer than i've been which is crazy um how when did you get first get started what year was that about so in 2008 um i started with me and my old business partner we got we're kind of handed a portfolio of 60 properties mostly in the midwest but kind of spread out all over and uh my very first kind of entrance into it was i did a car like a driving tour to see what we had and i got to go and tour all the so if it's an eight percent you're probably gonna you know bid way higher or way lower illustrations where here you're not going to get the deal we're here you may actually pay too much right if i raise this thing up to you know a a 10 coupon rate you're gonna be going crazy you should actually drop this bit down because you're not going to get the return because the sellers just see this and go your business had a 17 year that's crazy yeah so i think that you know does that make sense to you i mean i know some investors were struggling with this no totally and the other thing that i look at and with that as well is um if i look at something and there's only like a two or three percent uh interest rate on there then i look at that and i go okay if the borrower can't make it work at three percent then i've got nowhere to go if i'm talking to the borrower and i'm trying to we're trying to negotiate something i've got nowhere to go and then the other part of that is the way that i do it is i'm reselling all the time so i'll get that reperforming and then i'll resell it so if i'm reselling a performer at a three percent coupon rate my discount is going to be huge so that that next investor can get his yield so maybe maybe explain why you have to i've explained before i want to see it from a different point of view why do you have to price something at a three percent coupon at such a discount where a 10 coupon say i want a 12 return why is a three percent coupon need to be priced completely a lot versus 10 coupon rate so it goes back to like you say your yield i'm i'm trying to buy something on sale but i'm still getting a return on that um let's see so if i look at something with the three percent coupon rate uh my payment is at that 345 the people just agreed to leave they signed it over and i i signed a release for them to release them from the contract it had been recorded which is another factor that you have to put in there if it hadn't been recorded we wouldn't have an issue but it was recorded uh so now well i had one title coming up selling the house i had one title company say that uh the release that i had signed wasn't valid they needed a new one that's fine that's not a huge deal but okay um but they're saying that the release actually wasn't going to be sufficient that we would have to get the release and then also do a quiet title i'm going to that doesn't make any sense at all like there's no reason the release releases that's the point yeah and and so i talked to my attorney out there it's just really really great and they said no no that's that's ridiculous you know try a different title company so i did and sure enough they're like oh yeah no that's fine gosh oh it's interesting too because when you're buying your cfds are you pricing strategy changed versus first position um not really um for me we had a bit of a discussion on this but for me when i'm going into bid i'm looking at again different factors um the difference between a cfd and a mortgage for pricing there's not a huge difference in the way that i approach that usually the cfd is a little bit lower just because still people are a little less familiar with them and that's fine by me but i'm looking at uh you know unpaid balance versus property value uh and then i'm also looking not just that but then i'm also looking at as much as i can kind of guesstimate on what the situation is like it for example if it's been driving tour to see what we had and i got to go and tour all the properties a lot of them were just junk there we had no operating budget we had nothing so we had to kind of come up with something and we're both from canada we thought we kind of invented seller financing we're so smart this is going to be awesome so we we started selling properties on seller financing because we had no operating budget no way to renovate these properties or anything so started like that so kind of and then it kind of progressed and got into uh contracts for deed it was mostly ohio they called land contracts there but um mostly selling stuff on land contract in ohio uh and then i started buying a couple of mortgages and some non-performing mortgages and then a few years back gosh 2015 maybe started seeing some of these non-performing contracts for deed coming up and at the time really nobody knew what they were and i was like are you kidding this is this is what i grew up on this is perfect so i bought a bunch of those i still buy those um lease options are something i just got into last year which are very very similar to contracts for deed and mortgages of course but i like first position i've never done any any second position stuff cool it's amazing because you know as big as a small space is there are so many different aspects that we're all different that we can be competitive but not be competitive at the same time cfd land contract something i didn't do i know i've teamed up with you know a couple in the past yeah it's just that nervousness the first position larger loans are always more comfortable for us as investors yeah um seconds is attractive too uh but just not our cup of tea uh but nothing wrong with them so it's interesting so if you could share share a deal that you've had that went just haywire you know kind of briefing um so looking back if i start analyzing a lot deals over time and i do on a fairly regular basis the ones that go funky are the ones where i take the property back i almost without i let not all of them go crazy like that but the ones that do almost always it's when i took back a property i don't know that i've ever had a performing note you know be a a non-profitable no yeah but i had one just this year uh where i had it the lady in the house she was making payments sporadically here and there and then just kind of went dark on us and uh we ended up taking back the property that one was that that was that's probably one of my worst ones where we took back the property and it was just a disaster uh plus there had been a bunch of city liens that had piled up and all this um so we ended up actually just giving it back to the county i think i had it up for sale we got an offer on it and i was actually going to lose money on like there was no benefit if i sold it i i was not going to make any more money than if i just let it go so i just let it go that's similar we uh in front of ours uh that's basically no one knows about in the space behind the scene oreo guy we had to go together years ago where we had a first position um people moved out didn't want it we're going to sign dean lou we're all excited got a whole second where they were in second and then he wanted full upbeat and it's like good lord and then we get in the house and they moved out of it five six years ago older people and shaking head green tree didn't know anything about the loan all the kind of stuff um we have plenty of horror stories and plenty of successes you're right performers seem to work out well um yeah so as much as i can i try to just stick with the note but and again you know you get these horror stories but obviously they're not all like that or we wouldn't still be here but yeah that happened occasionally so yeah and it's interesting because you know times were eight years ago and today are completely different spaces pricing and whatnot um and it's difficult to understand the differences and and even if we went back in time we still would be stuck because at the time it seemed crazy to do anything different as we all joke around for sure it was a huge leap of faith just to buy that first i bought a package of three actually from our friend jack yeah and uh and that was a huge leap of faith because i'm like you know it wasn't very much money it was only 10 grand so that's fine but but that could have been just down the toilet i had no idea what i was going to do with these but it worked out and made money on it i thought oh man this is awesome so and that curiosity pricing because i i was i was working for jack at the time what was what was the like the balance of those loans it was three loans you bought for 10 grand i think so and again you got to go back in time because this is 2010 so the balance on it was something like um oh i don't know 50 60 000 on on each one of them but the property the value is only about 20.

yeah so this is this is way back before prices started to recover so there were i was buying them based on property value um yeah which and like i say it worked out and so that's great but yeah it was interesting and i think if we had a really bad one beginning which i'm sure a lot of investors in the space do yeah we'd be out of it right uh we got lucky our first deals worked out so it's interesting to see that dynamic yeah i don't buy cfds share a little bit about what you like about cfds versus original notes besides the pricing of course yeah pricing for sure is a big factor um i don't know you know i think i like so well there's a couple of things so i know a lot of people go after bigger notes and i totally get why and it's bigger uh you know bigger dollars coming back in and so that's much more attractive for sure at the same time though um this year is the first i think it's the first time i'm pretty sure it's a cfd it might be a mortgage anyhow at the price the price range that i buy in uh this year is the first time that i ever had a borrower fight me on foreclosure so i avoid a whole bunch of heartache and headache and just you know frustration by going after some of the less expensive stuff and and the less sophisticated borrowers that are not going to have an attorney on on call and for those what we do we we limit our pricing range of the value to property you know we only buy 50 000 to about 250 depending on what state it is yeah what's your what's your trick to hopefully avoid those bothersome investors or borrowers i i'm close i'm i go 50 000 property value up to 150.

and then i figure after that you're getting into you know more sophisticated people where they're there's somebody that might have an attorney at least a friend that they can call on and yes cause trouble yeah so that's i mean that's the biggest thing for us is i think a lot of questions don't talk about is that to avoid that headache buy the property that sadly enough the borrower doesn't have a lot of money to go out and hire somebody to fight our legal effect because 150 grand and you're spending five grand legal that's a lot of money yeah exactly and and it's not that i'm trying to take advantage of anybody or anything like that but i the way i look at it is i'm in first position you haven't paid your mortgage or your or your house payment in the end i'm a month um and i paid 35 for it then the amount of money that i'm actually making on that is is significantly less but so it's it's three percent if i bought it at par then my return would be three percent just make sure everyone knows par means whatever the upbeat is that time is so you'd buy for 50.

he'd make the three percent return right so if i bought it at 50 i would be making three percent um return on that my that's my yield so if i even if i buy it on sale uh if it goes up to eight percent that's great but it's still only eight percent and typically that's in our world that's not high enough uh if it's out of ten percent if i bought that at ten percent uh if i bought it at car at 10 then i'm bringing home 10 is my yield yep so the discount on that could be a whole lot less uh because the yield is going to be higher in the end you can buy the thing at 80 90 of upb and be okay because the right coupon on the deal is 10 yeah exactly because all you have to get to if you want to get 12 all you need to do is discount it a little bit and buy it 90 because then that coupon goes up so bidding is strictly on upv or bpo makes it difficult to get that return because you just you're eliminating or removing the coupon rate out of the equation of calculating what your return is right and and in our world my world i bid everything based on my desired return and back into that number um and i if i'm shooting for a 10 return i'm going to back in and say okay what do i have to bias that to get my yield at 10.

right versus play with numbers play with numbers play with numbers i set my return and say okay this is the number i have to get to get this return and most of the time it you know cooper meets at three or two or three or four percent i'll just gonna win and so let's just make this as painless as possible save you some money save us both some time and frustration and just be done you know like it's it's it's kind of the tough love approach but i'd rather not go through the fight to end up winning in the end and just have all that time and energy wrapped up in it i don't want to bother with it it's interesting too because you know you we always back up saying let's we're not trying to take advantage anyone but at the same time this person didn't make a payment for whatever reason and which i think borrowers don't know is call us up and tell us a story just tell us something and make it believable and back it up with something hey listen this is going on have i been played before absolutely been played but at least made the effort they're not you know because i'm not looking to kick you out of the house but if you made a payment you're not communicating i got to do something this is still a mortgage to secure my property and i promise you a bank wouldn't give you any legal at all if they still on the loan yeah or even hedge funds for that matter no i'm i'm here to help and i'm willing to help yes but you got to talk to me and let me know what's going on and then we'll see what we can do and it might not always be okay yeah no problem you can just stay there that might not be the answer but like let's at least have a conversation and at the very least i can help you get started somewhere else the bank's not gonna need that either no no and so what do you when you're doing these cfds and whatnot um are there certain states you're trying to avoid uh yes [Music] in general um new england is just tough uh anything new england new york new jersey new hampshire maine any of those i've got one in maine it's just a major headache i got another one in connecticut that's not as bad but they're a pain so the new england states are tough um most of the new england states don't recognize contracts for deed uh they treat it the same as a mortgage so there's no advantage and then florida is another one that doesn't recognize contracts for deed but generally speaking pretty much everywhere uh it it and it's a different thing in different states louisiana it's called a bond for deed you know it depends on where you are essentially it's the same thing but it just the foreclosure process is a lot more expedited at the very least uh sometimes it's just an eviction uh but but it's state by state and i think that's you know we've talked about this a lot and it's one of these things and it's kind of the attorney answer and and but it's true is well what about this situation well it depends i hate that answer but i understand it yeah um because it does it where are you you know what's what's the unpaid balance like there's so many factors it's yeah that's we recently launched uh bid calculator just a few days ago um and we did a whole webinar on that and one of the concepts came up with cfds and unlike first which has regulations cfds are very local in certain situations where just in to figure out equity in the property that makes a foreclosure or not is very difficult i mean i know pa is all extremely difficult and like ohio if you're 20 in your equity it's become a mortgage in every state's different i believe counties start separating two i don't know have you experienced where like a deal in two different parts of state once considered to have to foreclose one isn't uh not so much per county but i have had different title agencies when i'm going to sell that property but for example i've got one right now where i'm selling the house so what happened was i bought the contractor deed in indiana and um vacant if if i know i send my realtor out there to go check it out and they come back and tell me it's vacant well then i'm gonna definitely i'm pricing that off of the on or not that unpaid balance but by the bpo value because the unpaid balance of that point is useless um there's no chance of that person or very very low chance i should say that they're ever going to come back and reinstate or something like that but if they've only missed you know three or four payments then i'm looking more on the unpaid balance the the property value is definitely still a consideration but i'm i'm gonna lean more towards the unpaid balance so again it depends and yeah yeah situation's different and we we had a uh semi debate during the our big calculator launch have you got a push back from sellers where the legal balance is significantly higher than the upb they want you to bid based on legal balance versus uvb say the ubb's 50 legal balances say 70 right they're wanting you to bid based on the legal balance versus the upb as long as they can confirm it's collectible yes i have had that and and again it depends on the situation and sometimes i agree with that and sometimes i don't um i would say there's equity in the deal if the problem where the buck 50 are you getting based on the 50 grand upb or the 75 legal balance is what's the property value 150 say 150 so yeah plenty of equity in that case i'm i'm comfortable going on well if it's a contract for deed uh i i don't care the the full payoff balance doesn't matter it doesn't make it correct um if it's a mortgage in that situation sure i'm i'm willing to go up because there's enough equity on top of the the payoff between the payoff and the value there's still enough buffer there where if i take it to auction there's a there's a good enough chance that i'll get somebody to bid on it at auction then yes i'm comfortable bidding on the unpaid balance but if it's if it's worth 90 grand only a little bit above the legal balance are you not as comfortable then i know and especially if there's negative equity then no oh yeah oh yeah absolutely not yeah yeah so it's interesting because you know one of the things we've i've seen come back up in the recent um six months or so and a lot of this push to strictly base every bid on percentage of bpo upb and almost eliminate other factors um and i had gone through some kind of explanation and maybe you can explain a little better where i'd actually show a a spreadsheet uh to a couple people to kind of explain what i meant by that um and i i think that the problem with it is is that people don't understand the factors and maybe is a little too much to kind of elaborate on um and i'll share my screen for a second to show you what i mean yeah hopefully it's clear enough but um if it's not clear just let me know so in a situation where there's a three percent coupon and a eight percent coupon right if i'm bidding 70 of value or upb on the situation where this thing's at thirty five thousand dollars each way right that simple change between the coupon rate here dramatically changes the p i of course and then dramatically change the return yeah exactly simple yield numbers right now you get that i get an xir and everything else yeah but i think that what we all grew up on is bidding at the stair step method back in early 2010s and now is different because the pricing has gone up and in one case based on this you have a great deal in some cases you have a terrible deal skip over it because for me to buy something and this is a big thing for guys who's listening now or later on if if you see coupon rates at three four or five percent to get that to a a ten you have to buy it a significant discount and it's not equivalent because there's time on this thing it's just one year left versus 15 years left that's a totally different pricing thing because the amount of payments remaining changes everything yeah so yeah and in my case i'm looking down the road i'm looking i i typically i try to sell whatever i'm selling that's performing i try to sell it at about a 13 rate which i think is pretty good yeah but again for me to get from three to thirteen i get that re you know re-performing and resell it i try to sell it at 13.

i'm gonna have to take a huge discount so i i would have to buy it then at a significant discount yeah i mean it's not likely yeah and just to show you guys what he means if he wants to get 13 discount on this uh on the fly here um so we do that and then payment amount let's say that and then future vir zero oh i forgot negative here i have to buy a thing at 27 000. yeah yeah to get a gross return of 13 so do you usually use your spreadsheet to do to do like future values and and uh that kind of thing are you using oh i i have our big big calculator that we use and it automatically calculates that and gives me the worst case scenario and everything else um that if it's performing is the best route it gives me it shoots out that number if it's not the best route and it says listen take the you know buying it because the highest hurdle maybe the auction if there's an equity situation it may be the auction that keeps me on the check it may be rehabbing it it may be selling it or whatever so i mean in this case uh an example to buy this to get to a 13 our three percent and our 10 percent to get our 10 to a 13 you can see i get biasing at 42 000 and get my 13 which in turn is [Music] 85 percent of bpm yeah so those who are watching this understand that concept there and understand that buying it strictly based on i'm gonna buy sixty percent of bpo and that's flooded even cfds shouldn't be priced with this flat across the board thing because some days you're gonna get a killer deal and some days you're pro you're way overbuy so it's difficult to concept and a lot nate i would believe you there's been a lot of calculators i've seen recently by investors who've been given out by other investors who strictly do percentages and i shake my head and say listen you understand and i get sometimes they don't but they have to learn it because sometimes the seller's gonna be ecstatic to your boy at that rate sure now and you have to understand the mechanics of of the financial calculator and how you know yeah you really have to get a good you don't have to be an expert but you have to have a decent understanding of how the financial calculator works and how to make those numbers make sense because you could get yourself into a world of trouble buying a three coupon rate and thinking you shot the mood and then you're stuck with something where you're you're dragging you know that's heavy and we have i i've got an instruction there was a five percent coupon it turned out six and a half just because i bought it whatever it was 45 cents because that's what we were buying at the time and they reinstated i went holy crap and i never calculated the fact that they reinstate where am i going to be at right um the lesson learned i couldn't sell it i had to hold on to it yeah um but we were able to absorb it and be what it is um cool stuff so like my calculator i i have um different scenarios so i look at you know if i take it back in foreclosure and i resell it then i've got my numbers plugged in and this is kind of my expected return and if i get a payoff this is my expected return if i'm reselling it as a reperformer this is my factory i look at all those factors including the coupon rate when i'm looking at it yeah and i i i hope people understand this is a little bit of math goes involving this and i've seen recent posts where people say hey why do people use calculators yeah and i i get that to a point but there are so many variables that go into this that buying it strictly based on a quick number unless you're mathematician your head which i know one person we both know that's very good at math and said however you need to understand the entire equation how it plays in what state it's in this is in texas versus new jersey we're totally different pricing you can't do that um coupon rate plays in a factor uh last payment received last day paid yeah yeah all these things have been five years since they paid right there's so many factors go into it and yes that's overwhelming um and and i think that you know we're hoping that our calculator we came up help people but i still think you should build your own stuff once you understand it yeah oh cool all right i mean i don't know there's got to be tutorials on how to use a financial calculator online or something but yeah barring that something like you're offering i think it's great just to help people to figure out make next step do you have any deals that are going on right now that you're going crazy or anything you're you're are you what are you doing right now um i'm wrapping up the end of this year so i'm i'm selling off uh just nothing really different i guess but i'm just trying to make sure i get everything closed before the end of the year i got one the one i just was dealing with this morning that's a pain so texas is special they're one of the only states where um and michigan seems to do this as well but texas is one where if i'm selling i took back a property selling the house and uh they want a u.s notary to to notarize my documents they're one of the only ones that is this that's the us notary so usually in that case i live half an hour from the border i drive down to champlain new york takes me all of you know 35 40 minutes and i drive down to the little community bank there and she signs everything no problem easiest but i've done that's off the table borders closed the u.s embassy is my second choice in town and i have to make an appointment and it's it's uh but uh they're closed to the public so that's off the table so i just found a service this morning they're gonna do it but it takes like a full two weeks to whoa walks around so that's what i got but i think we can still get it closed by the end of the year i just was trying to get all my numbers in and you know boost up the portfolios awesome well i'm gonna cut it off there i think we did about half hour talk uh i look forward to doing this more man you have a lot of knowledge you're quiet but you have a ton of experience and different aspects in this field i always loved uh hanging out and talking with for a few minutes uh but i'm gonna end it here uh i'll replay this later in a day for anyone who missed it i think we got some awesome stuff in here um that we'll we'll explain more nathan i hope we uh we do this again real soon i think between you and me we can do this for hours i know i know i'm like wait i should end this just keep going with it i just i think that people just understand like when you're in the space there's people that you gravitate towards and people we see over the years over and over and over again and it it's a for that i'm really appreciative of this entire space it gives you a reason to do certain things and as i said last week this is the only thing on facebook or social media is for this other than that i really don't care if anyone else yeah that's it that's it well nathan i'm gonna let you go man i will uh i'm gonna end this live video um but uh we'll definitely do this again real soon hopefully in about a week or two maybe right after christmas we'll run it again yeah sounds good all right thanks a lot yeah good day all right bye properties a lot of them were just junk there we had no operating budget we had nothing so we had to kind of come up with something and we're both from canada we thought we kind of invented seller financing we're so smart this is going to be awesome so we we started selling properties on seller financing because we had no operating budget no way to renovate these properties or anything so started like that so kind of and then it kind of progressed and got into uh contracts for deed it was mostly ohio they called land contracts there but um mostly selling stuff on land contract in ohio uh and then i started buying a couple of mortgages and some non-performing mortgages and then a few years back gosh 2015 maybe started seeing some of these non-performing contracts for deed coming up and at the time really nobody knew what they were and i was like are you kidding this is this is what i grew up on this is perfect so i bought a bunch of those i still buy those um lease options are something i just got into last year which are very very similar to contracts for deed and mortgages of course but i like first position i've never done any any second position stuff cool it's amazing because you know as big as a small space is there are so many different aspects that we're all different that we can be competitive but not be competitive at the same time cfd land contract something i didn't do i know i've teamed up with you know a couple in the past yeah it's just that nervousness the first position larger loans are always more comfortable for us as investors yeah um seconds is attractive too uh but just not our cup of tea uh but nothing wrong with them so it's interesting so if you could share share a deal that you've had that went just haywire you know kind of briefing um so looking back if i start analyzing a lot deals over time and i do on a fairly regular basis the ones that go funky are the ones where i take the property back i almost without i let not all of them go crazy like that but the ones that do almost always it's when i took back a property i don't know that i've ever had a performing note you know be a a non-profitable no yeah but i had one just this year uh where i had it the lady in the house she was making payments sporadically here and there and then just kind of went dark on us and uh we ended up taking back the property that one was that that was that's probably one of my worst ones where we took back the property and it was just a disaster uh plus there had been a bunch of city liens that had piled up and all this um so we ended up actually just giving it back to the county i think i had it up for sale we got an offer on it and i was actually going to lose money on like there was no benefit if i sold it i i was not going to make any more money than if i just let it go so i just let it go that's similar we uh in front of ours uh that's basically no one knows about in the space behind the scene oreo guy we had to go together years ago where we had a first position um people moved out didn't want it we're going to sign dean lou we're all excited got a whole second where they were in second and then he wanted full upbeat and it's like good lord and then we get in the house and they moved out of it five six years ago older people and shaking head green tree didn't know anything about the loan all the kind of stuff um we have plenty of horror stories and plenty of successes you're right performers seem to work out well um yeah so as much as i can i try to just stick with the note but and again you know you get these horror stories but obviously they're not all like that or we wouldn't still be here but yeah that happened occasionally so yeah and it's interesting because you know times were eight years ago and today are completely different spaces pricing and whatnot um and it's difficult to understand the differences and and even if we went back in time we still would be stuck because at the time it seemed crazy to do anything different as we all joke around for sure it was a huge leap of faith just to buy that first i bought a package of three actually from our friend jack yeah and uh and that was a huge leap of faith because i'm like you know it wasn't very much money it was only 10 grand so that's fine but but that could have been just down the toilet i had no idea what i was going to do with these but it worked out and made money on it i thought oh man this is awesome so and that curiosity pricing because i i was i was working for jack at the time what was what was the like the balance of those loans it was three loans you bought for 10 grand i think so and again you got to go back in time because this is 2010 so the balance on it was something like um oh i don't know 50 60 000 on on each one of them but the property the value is only about 20.

yeah so this is this is way back before prices started to recover so there were i was buying them based on property value um yeah which and like i say it worked out and so that's great but yeah it was interesting and i think if we had a really bad one beginning which i'm sure a lot of investors in the space do yeah we'd be out of it right uh we got lucky our first deals worked out so it's interesting to see that dynamic yeah i don't buy cfds share a little bit about what you like about cfds versus original notes besides the pricing of course yeah pricing for sure is a big factor um i don't know you know i think i like so well there's a couple of things so i know a lot of people go after bigger notes and i totally get why and it's bigger uh you know bigger dollars coming back in and so that's much more attractive for sure at the same time though um this year is the first i think it's the first time i'm pretty sure it's a cfd it might be a mortgage anyhow at the price the price range that i buy in uh this year is the first time that i ever had a borrower fight me on foreclosure so i avoid a whole bunch of heartache and headache and just you know frustration by going after some of the less expensive stuff and and the less sophisticated borrowers that are not going to have an attorney on on call and for those what we do we we limit our pricing range of the value to property you know we only buy 50 000 to about 250 depending on what state it is yeah what's your what's your trick to hopefully avoid those bothersome investors or borrowers i i'm close i'm i go 50 000 property value up to 150.

and then i figure after that you're getting into you know more sophisticated people where they're there's somebody that might have an attorney at least a friend that they can call on and yes cause trouble yeah so that's i mean that's the biggest thing for us is i think a lot of questions don't talk about is that to avoid that headache buy the property that sadly enough the borrower doesn't have a lot of money to go out and hire somebody to fight our legal effect because 150 grand and you're spending five grand legal that's a lot of money yeah exactly and and it's not that i'm trying to take advantage of anybody or anything like that but i the way i look at it is i'm in first position you haven't paid your mortgage or your or your house payment in the end i'm gonna win and so let's just make this as painless as possible save you some money save us both some time and frustration and just be done you know like it's it's it's kind of the tough love approach but i'd rather not go through the fight to end up winning in the end and just have all that time and energy wrapped up in it i don't want to bother with it it's interesting too because you know you we always back up saying let's we're not trying to take advantage anyone but at the same time this person didn't make a payment for whatever reason and which i think borrowers don't know is call us up and tell us a story just tell us something and make it believable and back it up with something hey listen this is going on have i been played before absolutely been played but at least made the effort they're not you know because i'm not looking to kick you out of the house but if you made a payment you're not communicating i got to do something this is still a mortgage to secure my property and i promise you a bank wouldn't give you any legal at all if they still on the loan yeah or even hedge funds for that matter no i'm i'm here to help and i'm willing to help yes but you got to talk to me and let me know what's going on and then we'll see what we can do and it might not always be okay yeah no problem you can just stay there that might not be the answer but like let's at least have a conversation and at the very least i can help you get started somewhere else the bank's not gonna need that either no no and so what do you when you're doing these cfds and whatnot um are there certain states you're trying to avoid uh yes [Music] in general um new england is just tough uh anything new england new york new jersey new hampshire maine any of those i've got one in maine it's just a major headache i got another one in connecticut that's not as bad but they're a pain so the new england states are tough um most of the new england states don't recognize contracts for deed uh they treat it the same as a mortgage so there's no advantage and then florida is another one that doesn't recognize contracts for deed but generally speaking pretty much everywhere uh it it and it's a different thing in different states louisiana it's called a bond for deed you know it depends on where you are essentially it's the same thing but it just the foreclosure process is a lot more expedited at the very least uh sometimes it's just an eviction uh but but it's state by state and i think that's you know we've talked about this a lot and it's one of these things and it's kind of the attorney answer and and but it's true is well what about this situation well it depends i hate that answer but i understand it yeah um because it does it where are you you know what's what's the unpaid balance like there's so many factors it's yeah that's we recently launched uh bid calculator just a few days ago um and we did a whole webinar on that and one of the concepts came up with cfds and unlike first which has regulations cfds are very local in certain situations where just in to figure out equity in the property that makes a foreclosure or not is very difficult i mean i know pa is all extremely difficult and like ohio if you're 20 in your equity it's become a mortgage in every state's different i believe counties start separating two i don't know have you experienced where like a deal in two different parts of state once considered to have to foreclose one isn't uh not so much per county but i have had different title agencies when i'm going to sell that property but for example i've got one right now where i'm selling the house so what happened was i bought the contractor deed in indiana and um the people just agreed to leave they signed it over and i i signed a release for them to release them from the contract it had been recorded which is another factor that you have to put in there if it hadn't been recorded we wouldn't have an issue but it was recorded uh so now well i had one title coming up selling the house i had one title company say that uh the release that i had signed wasn't valid they needed a new one that's fine that's not a huge deal but okay um but they're saying that the release actually wasn't going to be sufficient that we would have to get the release and then also do a quiet title i'm going to that doesn't make any sense at all like there's no reason the release releases that's the point yeah and and so i talked to my attorney out there it's just really really great and they said no no that's that's ridiculous you know try a different title company so i did and sure enough they're like oh yeah no that's fine gosh oh it's interesting too because when you're buying your cfds are you pricing strategy changed versus first position um not really um for me we had a bit of a discussion on this but for me when i'm going into bid i'm looking at again different factors um the difference between a cfd and a mortgage for pricing there's not a huge difference in the way that i approach that usually the cfd is a little bit lower just because still people are a little less familiar with them and that's fine by me but i'm looking at uh you know unpaid balance versus property value uh and then i'm also looking not just that but then i'm also looking at as much as i can kind of guesstimate on what the situation is like it for example if it's been vacant if if i know i send my realtor out there to go check it out and they come back and tell me it's vacant well then i'm gonna definitely i'm pricing that off of the on or not that unpaid balance but by the bpo value because the unpaid balance of that point is useless um there's no chance of that person or very very low chance i should say that they're ever going to come back and reinstate or something like that but if they've only missed you know three or four payments then i'm looking more on the unpaid balance the the property value is definitely still a consideration but i'm i'm gonna lean more towards the unpaid balance so again it depends and yeah yeah situation's different and we we had a uh semi debate during the our big calculator launch have you got a push back from sellers where the legal balance is significantly higher than the upb they want you to bid based on legal balance versus uvb say the ubb's 50 legal balances say 70 right they're wanting you to bid based on the legal balance versus the upb as long as they can confirm it's collectible yes i have had that and and again it depends on the situation and sometimes i agree with that and sometimes i don't um i would say there's equity in the deal if the problem where the buck 50 are you getting based on the 50 grand upb or the 75 legal balance is what's the property value 150 say 150 so yeah plenty of equity in that case i'm i'm comfortable going on well if it's a contract for deed uh i i don't care the the full payoff balance doesn't matter it doesn't make it correct um if it's a mortgage in that situation sure i'm i'm willing to go up because there's enough equity on top of the the payoff between the payoff and the value there's still enough buffer there where if i take it to auction there's a there's a good enough chance that i'll get somebody to bid on it at auction then yes i'm comfortable bidding on the unpaid balance but if it's if it's worth 90 grand only a little bit above the legal balance are you not as comfortable then i know and especially if there's negative equity then no oh yeah oh yeah absolutely not yeah yeah so it's interesting because you know one of the things we've i've seen come back up in the recent um six months or so and a lot of this push to strictly base every bid on percentage of bpo upb and almost eliminate other factors um and i had gone through some kind of explanation and maybe you can explain a little better where i'd actually show a a spreadsheet uh to a couple people to kind of explain what i meant by that um and i i think that the problem with it is is that people don't understand the factors and maybe is a little too much to kind of elaborate on um and i'll share my screen for a second to show you what i mean yeah hopefully it's clear enough but um if it's not clear just let me know so in a situation where there's a three percent coupon and a eight percent coupon right if i'm bidding 70 of value or upb on the situation where this thing's at thirty five thousand dollars each way right that simple change between the coupon rate here dramatically changes the p i of course and then dramatically change the return yeah exactly simple yield numbers right now you get that i get an xir and everything else yeah but i think that what we all grew up on is bidding at the stair step method back in early 2010s and now is different because the pricing has gone up and in one case based on this you have a great deal in some cases you have a terrible deal so if it's an eight percent you're probably gonna you know bid way higher or way lower illustrations where here you're not going to get the deal we're here you may actually pay too much right if i raise this thing up to you know a a 10 coupon rate you're gonna be going crazy you should actually drop this bit down because you're not going to get the return because the sellers just see this and go your business had a 17 year that's crazy yeah so i think that you know does that make sense to you i mean i know some investors were struggling with this no totally and the other thing that i look at and with that as well is um if i look at something and there's only like a two or three percent uh interest rate on there then i look at that and i go okay if the borrower can't make it work at three percent then i've got nowhere to go if i'm talking to the borrower and i'm trying to we're trying to negotiate something i've got nowhere to go and then the other part of that is the way that i do it is i'm reselling all the time so i'll get that reperforming and then i'll resell it so if i'm reselling a performer at a three percent coupon rate my discount is going to be huge so that that next investor can get his yield so maybe maybe explain why you have to i've explained before i want to see it from a different point of view why do you have to price something at a three percent coupon at such a discount where a 10 coupon say i want a 12 return why is a three percent coupon need to be priced completely a lot versus 10 coupon rate so it goes back to like you say your yield i'm i'm trying to buy something on sale but i'm still getting a return on that um let's see so if i look at something with the three percent coupon rate uh my payment is at that 345 a month um and i paid 35 for it then the amount of money that i'm actually making on that is is significantly less but so it's it's three percent if i bought it at par then my return would be three percent just make sure everyone knows par means whatever the upbeat is that time is so you'd buy for 50.

he'd make the three percent return right so if i bought it at 50 i would be making three percent um return on that my that's my yield so if i even if i buy it on sale uh if it goes up to eight percent that's great but it's still only eight percent and typically that's in our world that's not high enough uh if it's out of ten percent if i bought that at ten percent uh if i bought it at car at 10 then i'm bringing home 10 is my yield yep so the discount on that could be a whole lot less uh because the yield is going to be higher in the end you can buy the thing at 80 90 of upb and be okay because the right coupon on the deal is 10 yeah exactly because all you have to get to if you want to get 12 all you need to do is discount it a little bit and buy it 90 because then that coupon goes up so bidding is strictly on upv or bpo makes it difficult to get that return because you just you're eliminating or removing the coupon rate out of the equation of calculating what your return is right and and in our world my world i bid everything based on my desired return and back into that number um and i if i'm shooting for a 10 return i'm going to back in and say okay what do i have to bias that to get my yield at 10.

right versus play with numbers play with numbers play with numbers i set my return and say okay this is the number i have to get to get this return and most of the time it you know cooper meets at three or two or three or four percent i'll just skip over it because for me to buy something and this is a big thing for guys who's listening now or later on if if you see coupon rates at three four or five percent to get that to a a ten you have to buy it a significant discount and it's not equivalent because there's time on this thing it's just one year left versus 15 years left that's a totally different pricing thing because the amount of payments remaining changes everything yeah so yeah and in my case i'm looking down the road i'm looking i i typically i try to sell whatever i'm selling that's performing i try to sell it at about a 13 rate which i think is pretty good yeah but again for me to get from three to thirteen i get that re you know re-performing and resell it i try to sell it at 13.

i'm gonna have to take a huge discount so i i would have to buy it then at a significant discount yeah i mean it's not likely yeah and just to show you guys what he means if he wants to get 13 discount on this uh on the fly here um so we do that and then payment amount let's say that and then future vir zero oh i forgot negative here i have to buy a thing at 27 000. yeah yeah to get a gross return of 13 so do you usually use your spreadsheet to do to do like future values and and uh that kind of thing are you using oh i i have our big big calculator that we use and it automatically calculates that and gives me the worst case scenario and everything else um that if it's performing is the best route it gives me it shoots out that number if it's not the best route and it says listen take the you know buying it because the highest hurdle maybe the auction if there's an equity situation it may be the auction that keeps me on the check it may be rehabbing it it may be selling it or whatever so i mean in this case uh an example to buy this to get to a 13 our three percent and our 10 percent to get our 10 to a 13 you can see i get biasing at 42 000 and get my 13 which in turn is [Music] 85 percent of bpm yeah so those who are watching this understand that concept there and understand that buying it strictly based on i'm gonna buy sixty percent of bpo and that's flooded even cfds shouldn't be priced with this flat across the board thing because some days you're gonna get a killer deal and some days you're pro you're way overbuy so it's difficult to concept and a lot nate i would believe you there's been a lot of calculators i've seen recently by investors who've been given out by other investors who strictly do percentages and i shake my head and say listen you understand and i get sometimes they don't but they have to learn it because sometimes the seller's gonna be ecstatic to your boy at that rate sure now and you have to understand the mechanics of of the financial calculator and how you know yeah you really have to get a good you don't have to be an expert but you have to have a decent understanding of how the financial calculator works and how to make those numbers make sense because you could get yourself into a world of trouble buying a three coupon rate and thinking you shot the mood and then you're stuck with something where you're you're dragging you know that's heavy and we have i i've got an instruction there was a five percent coupon it turned out six and a half just because i bought it whatever it was 45 cents because that's what we were buying at the time and they reinstated i went holy crap and i never calculated the fact that they reinstate where am i going to be at right um the lesson learned i couldn't sell it i had to hold on to it yeah um but we were able to absorb it and be what it is um cool stuff so like my calculator i i have um different scenarios so i look at you know if i take it back in foreclosure and i resell it then i've got my numbers plugged in and this is kind of my expected return and if i get a payoff this is my expected return if i'm reselling it as a reperformer this is my factory i look at all those factors including the coupon rate when i'm looking at it yeah and i i i hope people understand this is a little bit of math goes involving this and i've seen recent posts where people say hey why do people use calculators yeah and i i get that to a point but there are so many variables that go into this that buying it strictly based on a quick number unless you're mathematician your head which i know one person we both know that's very good at math and said however you need to understand the entire equation how it plays in what state it's in this is in texas versus new jersey we're totally different pricing you can't do that um coupon rate plays in a factor uh last payment received last day paid yeah yeah all these things have been five years since they paid right there's so many factors go into it and yes that's overwhelming um and and i think that you know we're hoping that our calculator we came up help people but i still think you should build your own stuff once you understand it yeah oh cool all right i mean i don't know there's got to be tutorials on how to use a financial calculator online or something but yeah barring that something like you're offering i think it's great just to help people to figure out make next step do you have any deals that are going on right now that you're going crazy or anything you're you're are you what are you doing right now um i'm wrapping up the end of this year so i'm i'm selling off uh just nothing really different i guess but i'm just trying to make sure i get everything closed before the end of the year i got one the one i just was dealing with this morning that's a pain so texas is special they're one of the only states where um and michigan seems to do this as well but texas is one where if i'm selling i took back a property selling the house and uh they want a u.s notary to to notarize my documents they're one of the only ones that is this that's the us notary so usually in that case i live half an hour from the border i drive down to champlain new york takes me all of you know 35 40 minutes and i drive down to the little community bank there and she signs everything no problem easiest but i've done that's off the table borders closed the u.s embassy is my second choice in town and i have to make an appointment and it's it's uh but uh they're closed to the public so that's off the table so i just found a service this morning they're gonna do it but it takes like a full two weeks to whoa walks around so that's what i got but i think we can still get it closed by the end of the year i just was trying to get all my numbers in and you know boost up the portfolios awesome well i'm gonna cut it off there i think we did about half hour talk uh i look forward to doing this more man you have a lot of knowledge you're quiet but you have a ton of experience and different aspects in this field i always loved uh hanging out and talking with for a few minutes uh but i'm gonna end it here uh i'll replay this later in a day for anyone who missed it i think we got some awesome stuff in here um that we'll we'll explain more nathan i hope we uh we do this again real soon i think between you and me we can do this for hours i know i know i'm like wait i should end this just keep going with it i just i think that people just understand like when you're in the space there's people that you gravitate towards and people we see over the years over and over and over again and it it's a for that i'm really appreciative of this entire space it gives you a reason to do certain things and as i said last week this is the only thing on facebook or social media is for this other than that i really don't care if anyone else yeah that's it that's it well nathan i'm gonna let you go man i will uh i'm gonna end this live video um but uh we'll definitely do this again real soon hopefully in about a week or two maybe right after christmas we'll run it again yeah sounds good all right thanks a lot yeah good day all right bye we don't know who we are nathan give me a little briefing of how lee mcdillin is what have you pretty much been doing where are you from so i live just outside of montreal in canada um and to answer the first question i get no i don't do anything in canada everything i do is in the united states um the last thing i bought in canada for properties was in 2006 i was flipping some houses out in western canada but anyway i got into notes uh kind of by accident um i think i like a lot of people that's kind of how we end up here but i i started going to some conferences heard whispers about these non-performing notes and i thought oh that's that sounds super risky gave it my first try in 2010 and went oh this is awesome this is great this is in a lot of ways a lot easier a lot cleaner than properties and so uh the further i go along the more i learn and it's just been a great experience i hope to do it for a long time to come yeah that's awesome man i think uh you know those who are new to space have a lot to learn uh but i also think those experience we're always learning our experience doesn't change or doesn't stop learning do deals stuff like that um typically what kind of deals have you bought i mean you've been doing this for longer than i've been which is crazy um how when did you get first get started what year was that about so in 2008 um i started with me and my old business partner we got we're kind of handed a portfolio of 60 properties mostly in the midwest but kind of spread out all over and uh my very first kind of entrance into it was i did a car like a driving tour to see what we had and i got to go and tour all the properties a lot of them were just junk there we had no operating budget we had nothing so we had to kind of come up with something and we're both from canada we thought we kind of invented seller financing we're so smart this is going to be awesome so we we started selling properties on seller financing because we had no operating budget no way to renovate these properties or anything so started like that so kind of and then it kind of progressed and got into uh contracts for deed it was mostly ohio they called land contracts there but um mostly selling stuff on land contract in ohio uh and then i started buying a couple of mortgages and some non-performing mortgages and then a few years back gosh 2015 maybe started seeing some of these non-performing contracts for deed coming up and at the time really nobody knew what they were and i was like are you kidding this is this is what i grew up on this is perfect so i bought a bunch of those i still buy those um lease options are something i just got into last year which are very very similar to contracts for deed and mortgages of course but i like first position i've never done any any second position stuff cool it's amazing because you know as big as a small space is there are so many different aspects that we're all different that we can be competitive but not be competitive at the same time cfd land contract something i didn't do i know i've teamed up with you know a couple in the past yeah it's just that nervousness the first position larger loans are always more comfortable for us as investors yeah um seconds is attractive too uh but just not our cup of tea uh but nothing wrong with them so it's interesting so if you could share share a deal that you've had that went just haywire you know kind of briefing um so looking back if i start analyzing a lot deals over time and i do on a fairly regular basis the ones that go funky are the ones where i take the property back i almost without i let not all of them go crazy like that but the ones that do almost always it's when i took back a property i don't know that i've ever had a performing note you know be a a non-profitable no yeah but i had one just this year uh where i had it the lady in the house she was making payments sporadically here and there and then just kind of went dark on us and uh we ended up taking back the property that one was that that was that's probably one of my worst ones where we took back the property and it was just a disaster uh plus there had been a bunch of city liens that had piled up and all this um so we ended up actually just giving it back to the county i think i had it up for sale we got an offer on it and i was actually going to lose money on like there was no benefit if i sold it i i was not going to make any more money than if i just let it go so i just let it go that's similar we uh in front of ours uh that's basically no one knows about in the space behind the scene oreo guy we had to go together years ago where we had a first position um people moved out didn't want it we're going to sign dean lou we're all excited got a whole second where they were in second and then he wanted full upbeat and it's like good lord and then we get in the house and they moved out of it five six years ago older people and shaking head green tree didn't know anything about the loan all the kind of stuff um we have plenty of horror stories and plenty of successes you're right performers seem to work out well um yeah so as much as i can i try to just stick with the note but and again you know you get these horror stories but obviously they're not all like that or we wouldn't still be here but yeah that happened occasionally so yeah and it's interesting because you know times were eight years ago and today are completely different spaces pricing and whatnot um and it's difficult to understand the differences and and even if we went back in time we still would be stuck because at the time it seemed crazy to do anything different as we all joke around for sure it was a huge leap of faith just to buy that first i bought a package of three actually from our friend jack yeah and uh and that was a huge leap of faith because i'm like you know it wasn't very much money it was only 10 grand so that's fine but but that could have been just down the toilet i had no idea what i was going to do with these but it worked out and made money on it i thought oh man this is awesome so and that curiosity pricing because i i was i was working for jack at the time what was what was the like the balance of those loans it was three loans you bought for 10 grand i think so and again you got to go back in time because this is 2010 so the balance on it was something like um oh i don't know 50 60 000 on on each one of them but the property the value is only about 20.

yeah so this is this is way back before prices started to recover so there were i was buying them based on property value um yeah which and like i say it worked out and so that's great but yeah it was interesting and i think if we had a really bad one beginning which i'm sure a lot of investors in the space do yeah we'd be out of it right uh we got lucky our first deals worked out so it's interesting to see that dynamic yeah i don't buy cfds share a little bit about what you like about cfds versus original notes besides the pricing of course yeah pricing for sure is a big factor um i don't know you know i think i like so well there's a couple of things so i know a lot of people go after bigger notes and i totally get why and it's bigger uh you know bigger dollars coming back in and so that's much more attractive for sure at the same time though um this year is the first i think it's the first time i'm pretty sure it's a cfd it might be a mortgage anyhow at the price the price range that i buy in uh this year is the first time that i ever had a borrower fight me on foreclosure so i avoid a whole bunch of heartache and headache and just you know frustration by going after some of the less expensive stuff and and the less sophisticated borrowers that are not going to have an attorney on on call and for those what we do we we limit our pricing range of the value to property you know we only buy 50 000 to about 250 depending on what state it is yeah what's your what's your trick to hopefully avoid those bothersome investors or borrowers i i'm close i'm i go 50 000 property value up to 150.

and then i figure after that you're getting into you know more sophisticated people where they're there's somebody that might have an attorney at least a friend that they can call on and yes cause trouble yeah so that's i mean that's the biggest thing for us is i think a lot of questions don't talk about is that to avoid that headache buy the property that sadly enough the borrower doesn't have a lot of money to go out and hire somebody to fight our legal effect because 150 grand and you're spending five grand legal that's a lot of money yeah exactly and and it's not that i'm trying to take advantage of anybody or anything like that but i the way i look at it is i'm in first position you haven't paid your mortgage or your or your house payment in the end i'm gonna win and so let's just make this as painless as possible save you some money save us both some time and frustration and just be done you know like it's it's it's kind of the tough love approach but i'd rather not go through the fight to end up winning in the end and just have all that time and energy wrapped up in it i don't want to bother with it it's interesting too because you know you we always back up saying let's we're not trying to take advantage anyone but at the same time this person didn't make a payment for whatever reason and which i think borrowers don't know is call us up and tell us a story just tell us something and make it believable and back it up with something hey listen this is going on have i been played before absolutely been played but at least made the effort they're not you know because i'm not looking to kick you out of the house but if you made a payment you're not communicating i got to do something this is still a mortgage to secure my property and i promise you a bank wouldn't give you any legal at all if they still on the loan yeah or even hedge funds for that matter no i'm i'm here to help and i'm willing to help yes but you got to talk to me and let me know what's going on and then we'll see what we can do and it might not always be okay yeah no problem you can just stay there that might not be the answer but like let's at least have a conversation and at the very least i can help you get started somewhere else the bank's not gonna need that either no no and so what do you when you're doing these cfds and whatnot um are there certain states you're trying to avoid uh yes [Music] in general um new england is just tough uh anything new england new york new jersey new hampshire maine any of those i've got one in maine it's just a major headache i got another one in connecticut that's not as bad but they're a pain so the new england states are tough um most of the new england states don't recognize contracts for deed uh they treat it the same as a mortgage so there's no advantage and then florida is another one that doesn't recognize contracts for deed but generally speaking pretty much everywhere uh it it and it's a different thing in different states louisiana it's called a bond for deed you know it depends on where you are essentially it's the same thing but it just the foreclosure process is a lot more expedited at the very least uh sometimes it's just an eviction uh but but it's state by state and i think that's you know we've talked about this a lot and it's one of these things and it's kind of the attorney answer and and but it's true is well what about this situation well it depends i hate that answer but i understand it yeah um because it does it where are you you know what's what's the unpaid balance like there's so many factors it's yeah that's we recently launched uh bid calculator just a few days ago um and we did a whole webinar on that and one of the concepts came up with cfds and unlike first which has regulations cfds are very local in certain situations where just in to figure out equity in the property that makes a foreclosure or not is very difficult i mean i know pa is all extremely difficult and like ohio if you're 20 in your equity it's become a mortgage in every state's different i believe counties start separating two i don't know have you experienced where like a deal in two different parts of state once considered to have to foreclose one isn't uh not so much per county but i have had different title agencies when i'm going to sell that property but for example i've got one right now where i'm selling the house so what happened was i bought the contractor deed in indiana and um the people just agreed to leave they signed it over and i i signed a release for them to release them from the contract it had been recorded which is another factor that you have to put in there if it hadn't been recorded we wouldn't have an issue but it was recorded uh so now well i had one title coming up selling the house i had one title company say that uh the release that i had signed wasn't valid they needed a new one that's fine that's not a huge deal but okay um but they're saying that the release actually wasn't going to be sufficient that we would have to get the release and then also do a quiet title i'm going to that doesn't make any sense at all like there's no reason the release releases that's the point yeah and and so i talked to my attorney out there it's just really really great and they said no no that's that's ridiculous you know try a different title company so i did and sure enough they're like oh yeah no that's fine gosh oh it's interesting too because when you're buying your cfds are you pricing strategy changed versus first position um not really um for me we had a bit of a discussion on this but for me when i'm going into bid i'm looking at again different factors um the difference between a cfd and a mortgage for pricing there's not a huge difference in the way that i approach that usually the cfd is a little bit lower just because still people are a little less familiar with them and that's fine by me but i'm looking at uh you know unpaid balance versus property value uh and then i'm also looking not just that but then i'm also looking at as much as i can kind of guesstimate on what the situation is like it for example if it's been vacant if if i know i send my realtor out there to go check it out and they come back and tell me it's vacant well then i'm gonna definitely i'm pricing that off of the on or not that unpaid balance but by the bpo value because the unpaid balance of that point is useless um there's no chance of that person or very very low chance i should say that they're ever going to come back and reinstate or something like that but if they've only missed you know three or four payments then i'm looking more on the unpaid balance the the property value is definitely still a consideration but i'm i'm gonna lean more towards the unpaid balance so again it depends and yeah yeah situation's different and we we had a uh semi debate during the our big calculator launch have you got a push back from sellers where the legal balance is significantly higher than the upb they want you to bid based on legal balance versus uvb say the ubb's 50 legal balances say 70 right they're wanting you to bid based on the legal balance versus the upb as long as they can confirm it's collectible yes i have had that and and again it depends on the situation and sometimes i agree with that and sometimes i don't um i would say there's equity in the deal if the problem where the buck 50 are you getting based on the 50 grand upb or the 75 legal balance is what's the property value 150 say 150 so yeah plenty of equity in that case i'm i'm comfortable going on well if it's a contract for deed uh i i don't care the the full payoff balance doesn't matter it doesn't make it correct um if it's a mortgage in that situation sure i'm i'm willing to go up because there's enough equity on top of the the payoff between the payoff and the value there's still enough buffer there where if i take it to auction there's a there's a good enough chance that i'll get somebody to bid on it at auction then yes i'm comfortable bidding on the unpaid balance but if it's if it's worth 90 grand only a little bit above the legal balance are you not as comfortable then i know and especially if there's negative equity then no oh yeah oh yeah absolutely not yeah yeah so it's interesting because you know one of the things we've i've seen come back up in the recent um six months or so and a lot of this push to strictly base every bid on percentage of bpo upb and almost eliminate other factors um and i had gone through some kind of explanation and maybe you can explain a little better where i'd actually show a a spreadsheet uh to a couple people to kind of explain what i meant by that um and i i think that the problem with it is is that people don't understand the factors and maybe is a little too much to kind of elaborate on um and i'll share my screen for a second to show you what i mean yeah hopefully it's clear enough but um if it's not clear just let me know so in a situation where there's a three percent coupon and a eight percent coupon right if i'm bidding 70 of value or upb on the situation where this thing's at thirty five thousand dollars each way right that simple change between the coupon rate here dramatically changes the p i of course and then dramatically change the return yeah exactly simple yield numbers right now you get that i get an xir and everything else yeah but i think that what we all grew up on is bidding at the stair step method back in early 2010s and now is different because the pricing has gone up and in one case based on this you have a great deal in some cases you have a terrible deal so if it's an eight percent you're probably gonna you know bid way higher or way lower illustrations where here you're not going to get the deal we're here you may actually pay too much right if i raise this thing up to you know a a 10 coupon rate you're gonna be going crazy you should actually drop this bit down because you're not going to get the return because the sellers just see this and go your business had a 17 year that's crazy yeah so i think that you know does that make sense to you i mean i know some investors were struggling with this no totally and the other thing that i look at and with that as well is um if i look at something and there's only like a two or three percent uh interest rate on there then i look at that and i go okay if the borrower can't make it work at three percent then i've got nowhere to go if i'm talking to the borrower and i'm trying to we're trying to negotiate something i've got nowhere to go and then the other part of that is the way that i do it is i'm reselling all the time so i'll get that reperforming and then i'll resell it so if i'm reselling a performer at a three percent coupon rate my discount is going to be huge so that that next investor can get his yield so maybe maybe explain why you have to i've explained before i want to see it from a different point of view why do you have to price something at a three percent coupon at such a discount where a 10 coupon say i want a 12 return why is a three percent coupon need to be priced completely a lot versus 10 coupon rate so it goes back to like you say your yield i'm i'm trying to buy something on sale but i'm still getting a return on that um let's see so if i look at something with the three percent coupon rate uh my payment is at that 345 a month um and i paid 35 for it then the amount of money that i'm actually making on that is is significantly less but so it's it's three percent if i bought it at par then my return would be three percent just make sure everyone knows par means whatever the upbeat is that time is so you'd buy for 50.

he'd make the three percent return right so if i bought it at 50 i would be making three percent um return on that my that's my yield so if i even if i buy it on sale uh if it goes up to eight percent that's great but it's still only eight percent and typically that's in our world that's not high enough uh if it's out of ten percent if i bought that at ten percent uh if i bought it at car at 10 then i'm bringing home 10 is my yield yep so the discount on that could be a whole lot less uh because the yield is going to be higher in the end you can buy the thing at 80 90 of upb and be okay because the right coupon on the deal is 10 yeah exactly because all you have to get to if you want to get 12 all you need to do is discount it a little bit and buy it 90 because then that coupon goes up so bidding is strictly on upv or bpo makes it difficult to get that return because you just you're eliminating or removing the coupon rate out of the equation of calculating what your return is right and and in our world my world i bid everything based on my desired return and back into that number um and i if i'm shooting for a 10 return i'm going to back in and say okay what do i have to bias that to get my yield at 10.

right versus play with numbers play with numbers play with numbers i set my return and say okay this is the number i have to get to get this return and most of the time it you know cooper meets at three or two or three or four percent i'll just skip over it because for me to buy something and this is a big thing for guys who's listening now or later on if if you see coupon rates at three four or five percent to get that to a a ten you have to buy it a significant discount and it's not equivalent because there's time on this thing it's just one year left versus 15 years left that's a totally different pricing thing because the amount of payments remaining changes everything yeah so yeah and in my case i'm looking down the road i'm looking i i typically i try to sell whatever i'm selling that's performing i try to sell it at about a 13 rate which i think is pretty good yeah but again for me to get from three to thirteen i get that re you know re-performing and resell it i try to sell it at 13.

i'm gonna have to take a huge discount so i i would have to buy it then at a significant discount yeah i mean it's not likely yeah and just to show you guys what he means if he wants to get 13 discount on this uh on the fly here um so we do that and then payment amount let's say that and then future vir zero oh i forgot negative here i have to buy a thing at 27 000. yeah yeah to get a gross return of 13 so do you usually use your spreadsheet to do to do like future values and and uh that kind of thing are you using oh i i have our big big calculator that we use and it automatically calculates that and gives me the worst case scenario and everything else um that if it's performing is the best route it gives me it shoots out that number if it's not the best route and it says listen take the you know buying it because the highest hurdle maybe the auction if there's an equity situation it may be the auction that keeps me on the check it may be rehabbing it it may be selling it or whatever so i mean in this case uh an example to buy this to get to a 13 our three percent and our 10 percent to get our 10 to a 13 you can see i get biasing at 42 000 and get my 13 which in turn is [Music] 85 percent of bpm yeah so those who are watching this understand that concept there and understand that buying it strictly based on i'm gonna buy sixty percent of bpo and that's flooded even cfds shouldn't be priced with this flat across the board thing because some days you're gonna get a killer deal and some days you're pro you're way overbuy so it's difficult to concept and a lot nate i would believe you there's been a lot of calculators i've seen recently by investors who've been given out by other investors who strictly do percentages and i shake my head and say listen you understand and i get sometimes they don't but they have to learn it because sometimes the seller's gonna be ecstatic to your boy at that rate sure now and you have to understand the mechanics of of the financial calculator and how you know yeah you really have to get a good you don't have to be an expert but you have to have a decent understanding of how the financial calculator works and how to make those numbers make sense because you could get yourself into a world of trouble buying a three coupon rate and thinking you shot the mood and then you're stuck with something where you're you're dragging you know that's heavy and we have i i've got an instruction there was a five percent coupon it turned out six and a half just because i bought it whatever it was 45 cents because that's what we were buying at the time and they reinstated i went holy crap and i never calculated the fact that they reinstate where am i going to be at right um the lesson learned i couldn't sell it i had to hold on to it yeah um but we were able to absorb it and be what it is um cool stuff so like my calculator i i have um different scenarios so i look at you know if i take it back in foreclosure and i resell it then i've got my numbers plugged in and this is kind of my expected return and if i get a payoff this is my expected return if i'm reselling it as a reperformer this is my factory i look at all those factors including the coupon rate when i'm looking at it yeah and i i i hope people understand this is a little bit of math goes involving this and i've seen recent posts where people say hey why do people use calculators yeah and i i get that to a point but there are so many variables that go into this that buying it strictly based on a quick number unless you're mathematician your head which i know one person we both know that's very good at math and said however you need to understand the entire equation how it plays in what state it's in this is in texas versus new jersey we're totally different pricing you can't do that um coupon rate plays in a factor uh last payment received last day paid yeah yeah all these things have been five years since they paid right there's so many factors go into it and yes that's overwhelming um and and i think that you know we're hoping that our calculator we came up help people but i still think you should build your own stuff once you understand it yeah oh cool all right i mean i don't know there's got to be tutorials on how to use a financial calculator online or something but yeah barring that something like you're offering i think it's great just to help people to figure out make next step do you have any deals that are going on right now that you're going crazy or anything you're you're are you what are you doing right now um i'm wrapping up the end of this year so i'm i'm selling off uh just nothing really different i guess but i'm just trying to make sure i get everything closed before the end of the year i got one the one i just was dealing with this morning that's a pain so texas is special they're one of the only states where um and michigan seems to do this as well but texas is one where if i'm selling i took back a property selling the house and uh they want a u.s notary to to notarize my documents they're one of the only ones that is this that's the us notary so usually in that case i live half an hour from the border i drive down to champlain new york takes me all of you know 35 40 minutes and i drive down to the little community bank there and she signs everything no problem easiest but i've done that's off the table borders closed the u.s embassy is my second choice in town and i have to make an appointment and it's it's uh but uh they're closed to the public so that's off the table so i just found a service this morning they're gonna do it but it takes like a full two weeks to whoa walks around so that's what i got but i think we can still get it closed by the end of the year i just was trying to get all my numbers in and you know boost up the portfolios awesome well i'm gonna cut it off there i think we did about half hour talk uh i look forward to doing this more man you have a lot of knowledge you're quiet but you have a ton of experience and different aspects in this field i always loved uh hanging out and talking with for a few minutes uh but i'm gonna end it here uh i'll replay this later in a day for anyone who missed it i think we got some awesome stuff in here um that we'll we'll explain more nathan i hope we uh we do this again real soon i think between you and me we can do this for hours i know i know i'm like wait i should end this just keep going with it i just i think that people just understand like when you're in the space there's people that you gravitate towards and people we see over the years over and over and over again and it it's a for that i'm really appreciative of this entire space it gives you a reason to do certain things and as i said last week this is the only thing on facebook or social media is for this other than that i really don't care if anyone else yeah that's it that's it well nathan i'm gonna let you go man i will uh i'm gonna end this live video um but uh we'll definitely do this again real soon hopefully in about a week or two maybe right after christmas we'll run it again yeah sounds good all right thanks a lot yeah good day all right bye.