Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
CDO - It's not just for Wall Street anymore!
Old 03-15-2009, 10:58 AM   #41
Recycles dryer sheets
 
Join Date: Jun 2008
Posts: 184
CDO - It's not just for Wall Street anymore!

Quote:
Originally Posted by clifp View Post
I agree diversification is my concern also. It would be nice if some enterprising firm took a bunch of these loans of a similar nature packaged them together and sold them to individual investors, that way if one failed I wouldn't have to forclose and risk losing $120,000. Basically bundle a bunch of debt obligations back with collateral, or a security backed by mortgages. They'd need a catchy name, can anybody think of one?
I think they are called Collateralized Debt Obligations!

The fun part is you can dump in lot's if skanky debt, leverage them to the moon, make billions, and the taxpayers will bail everyone out in the end when the whole thing collapses!

I'm in!!
__________________

__________________
Hal3 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-15-2009, 11:08 AM   #42
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 5,459
Quote:
Originally Posted by Hal3 View Post
I think they are called Collateralized Debt Obligations!

The fun part is you can dump in lot's if skanky debt, leverage them to the moon, make billions, and the taxpayers will bail everyone out in the end when the whole thing collapses!

I'm in!!

Here you go Hal:

And now for something completely different!

Except for the part where there are a group of investors, and the leveraging part, and the taxpayer bailout, oh, and the make billions and collapse part, I can see this. Sort of like Oriental carpets used to be sold: by the bale. Buyers didn't pay much for a bale of rugs, there would be some absolute junk, a lot of normal rugs, and a few OMG hidden gems. Fun. Profitable. Maybe like buying a pack of trading cards?
__________________

__________________
calmloki is offline   Reply With Quote
Each sightholder is given a box of diamonds.
Old 03-15-2009, 11:31 AM   #43
Recycles dryer sheets
 
Join Date: Jun 2008
Posts: 184
Each sightholder is given a box of diamonds.

Quote:
Originally Posted by calmloki View Post
Except for the part where there are a group of investors, and the leveraging part, and the taxpayer bailout, oh, and the make billions and collapse part, I can see this.
Those are the best parts!
The carpet thing reminds me of when I used to collect stamps as a kid and buy bags of "unsorted" stamps with the promise of undiscovered valuable stamps in the bag. Same with bags of old coins. I guess it is an age-old scam. I understand that is how DeBeers wholesales diamonds.

"DeBeers sells these rough diamonds to approximately 80 "sightholders" (generally, major diamond cutting firms) which are the only companies authorized to buy rough diamonds directly from DeBeers. The sightholders are invited to attend a "sight" held at DeBeers Central Selling Organization in London, England approximately ten times a year (acceptance of the invitation is mandatory). Each sightholder is given a box of diamonds. The price of the diamonds is fixed by DeBeers and is not subject to negotiation."

DeBeers
__________________
Hal3 is offline   Reply With Quote
Old 03-15-2009, 11:51 AM   #44
Thinks s/he gets paid by the post
 
Join Date: Oct 2008
Location: Naples
Posts: 2,161
Hope "title search" and "title insurance" don't confuse people. In the old days, the sale of property might include going to an attorney and have him do a search of the title. All this involves is reviewing the history of the property and determining if there are any liens outstanding. The attorney put his stamp of approval on the search and that was conveyed to the purchaser. If someone comes along later and has a claim on that property, you'd have to go back on the attorney and sue him. The new method is to purchase "title insurance" whereby you own a policy to guarantee you clear title (generally paid for by the seller). The seller is giving you this insurance policy to guarantee that the property is free from all encumbrances.
__________________
JOHNNIE36 is offline   Reply With Quote
Old 03-15-2009, 12:16 PM   #45
Recycles dryer sheets
canadianteddy's Avatar
 
Join Date: Nov 2008
Posts: 54
Quote:
Originally Posted by JOHNNIE36 View Post
Hope "title search" and "title insurance" don't confuse people. In the old days, the sale of property might include going to an attorney and have him do a search of the title. All this involves is reviewing the history of the property and determining if there are any liens outstanding. The attorney put his stamp of approval on the search and that was conveyed to the purchaser. If someone comes along later and has a claim on that property, you'd have to go back on the attorney and sue him. The new method is to purchase "title insurance" whereby you own a policy to guarantee you clear title (generally paid for by the seller). The seller is giving you this insurance policy to guarantee that the property is free from all encumbrances.
I would consider both manditory requirements prior to advancing funds under a mortgage.

Also, calmloki, if this is the type of investment you are considering in the future, I'd be happy to pass on the aquired knowlege I've obtained, if u think it would be helpful or transferable. Been involved it this sort of stuff for about 25 yrs.
__________________
canadianteddy is offline   Reply With Quote
Old 03-15-2009, 12:38 PM   #46
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 5,459
Quote:
Originally Posted by canadianteddy View Post
I would consider both manditory requirements prior to advancing funds under a mortgage.

Also, calmloki, if this is the type of investment you are considering in the future, I'd be happy to pass on the aquired knowlege I've obtained, if u think it would be helpful or transferable. Been involved it this sort of stuff for about 25 yrs.

Sure, appreciate it! We've only done maybe a half dozen property loans in the last 5 years, a fair amount of buying & selling our own rental property, but this is our first loan or property sale that is going bad. Always room to learn!

Trying to have this thread be a source of information for how funding private property loans work out for any who want to consider them as an income source. My experience is very limited, but figure posting successes, failures, glitches and gotchas may be helpful to someone who's thinking about trying this.
__________________
calmloki is offline   Reply With Quote
Old 03-15-2009, 12:45 PM   #47
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Quote:
Originally Posted by calmloki View Post
I don't speak fluent legalese, but my current understanding is that the deed of trust only secures my interest, so I say, through the lawyer; "hey - you've violated the terms of the contract - i call all sums due right now, including legal fees". If the borrower pays up he gets the deed of trust and i walk away, contract paid in full. If he doesn't, I have the right, with the deed of trust, to sell the property to recover what is due me and make myself whole. The first bid on the property is mine, in the amount due me including all legal fees. If no one bids a higher amount i own the property.

If someone bids a higher amount i can bid against them if i chose, if i don't chose to outbid them they pay me my due and the remainder goes to the holders of the second, then third position loan holders, if there are any, then remainder to the borrower.

Another option is for the borrower to avoid foreclosure by signing over any interest he might have in the property - think that's called a deed in lieu of foreclosure.

Lawyer types feel free to correct me - figure i'll know more tomorrow after we meet with a lawyer.
You got it. The first mortgage/deed of trust holder often bids the amount of the debt to them. They don't have to come up with cash to bid. If an outsider bids, they will need cash. Junior lenders can also foreclose but they get the property subject to the first lien if they bid their debt. There usually is a redemption period before or after the sale, depending on the state, where the borrower has the opportunity to pay off the debt.

So I take it there is a junior lien holder? Maybe contact them and see if they are going to pay you off? Otherwise, to get rid of the secondary liens you have to foreclose them out.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Old 03-15-2009, 08:43 PM   #48
Recycles dryer sheets
 
Join Date: Jun 2008
Posts: 184
Quote:
Originally Posted by calmloki View Post
Trying to have this thread be a source of information for how funding private property loans work out for any who want to consider them as an income source. My experience is very limited, but figure posting successes, failures, glitches and gotchas may be helpful to someone who's thinking about trying this.
I did this once with some raw land that I owned outright. I guess this is more like seller financing although the principle is the same. It worked out very well for us. We earned much more than we would have earned selling for cash or a buyer/bank financed loan and putting the money into CD's.

I had no concern about the raw land being in the buyers possession. He intended to build on the land and eventually did. He had excellent credit so I had no worries about him making payments.

We had the payments go to a bank that handled them for us and kept track of the interest and principle for a small fee.

Of course we had an attorney draw up the paperwork.

So .. there are fees and expenses but we still came out way ahead.

We did get enough down payment to pay the tax on the gains but that is another issue.
__________________
Hal3 is offline   Reply With Quote
Old 03-16-2009, 11:44 AM   #49
Recycles dryer sheets
canadianteddy's Avatar
 
Join Date: Nov 2008
Posts: 54
When doing such mortgages we always personally inspect the properties and make effort to meet with the borrowers. This gives us a good indication of value. That may be simplistic starting point but essential.

Often times we also request an appraisal of the property which is a cost to the borrower. Any costs to draw up legal papers are also a cost to the borrower and is indicated in writing prior to proceeding with the loan. Further, all discharge costs are also the responsibility of the borrower.

Any terms and conditions of the mortgage such as a 3 month pre penalty clause, charges for NSF cheques, attendance for insurance issues and many other clauses are laid out in the beginning. Cost for foreclosure proceedings are also indicated and added to the ultimate payout should the loan go bad.

Make sure you as the lender are named on insurance policies.

Just some things we do. Hopefully this is helpful and the kind of info u may be looking for.

If such legalese is dealt with in the beginning, should the property proceed to forecloser then the ending process is less stressful.

Bookeeping, on a simple spreadsheet is not hard either.
__________________
canadianteddy is offline   Reply With Quote
Old 04-09-2009, 09:36 AM   #50
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 5,459
Yesterday the property loan that was the subject of the first post in this thread paid off. The original borrowers refinanced. Worked out OK - 15 months of regular 10% income. Took the check right over to our local bank and deposited it so we wouldn't lose out on the .07% rate they are paying. Not going to race to move it to Capitol One with it's 2% rate - looking for other lending or buying opportunities in the area.

The loan that is being foreclosed by the second mortgage holder continues to pay us as agreed, which i hope means they don't plan to lose it. Sent off $170 to the lawyer who advised us to sit tight and let the second mortgage holder do the heavy lifting - looked at the building the mortgage is on when we were picking up the above check - starting to need paint, but a good place and location.

Coincidentally, the little rental house we thought we had sold isn't - between realtor fees, seller to buyer closing contributions, and an open-ended price from a contractor to do repairs it turned into a bad deal. Current plan is to have a contractor we know do repairs on the inspection report and see if we can't find our own buyer - shaping up to be a lovely spring here in Oregon. Funny that the sale asking price is very close to the amount of the loan that just paid off and that the selling is a much bigger PITA.

Day before yesterday we drove up to Detroit Lake in the mountains to look at a lending opportunity - an older double wide - decided against loaning on it, but had a nice drive & lunch. Day before went to Amity to look at another deal, which, again was just a good reason to take a nice drive and lunch. Guessing we look at maybe 8 deals or so to for every one we do.
__________________
calmloki is offline   Reply With Quote
Old 04-24-2009, 06:08 PM   #51
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 5,459
Used the majority of the last loan payoff to do something a little different for us: a second mortgage/bridge loan on a row house. Charged a 2% fee upfront and 12% interest with a 3 month term. Borrower has the right to extend the term another 3 months at the same interest rate by paying another 2% fee. That's effective short term interest of 20%. A bit spooky, but we got a free night at the coast in a similar unit, checked the title insurance, and met the borrower builder. All these row houses differ from condos in that they own the dirt they sit on and their own roofs. We'll see how it goes.... We loaned on the unit second to the right of the owner's big place - 16x40, 3 story w/ garage at one end of the bottom story - about 1560' living space, ocean front.




The owner's unit is looking crazy opulent - major props to a 35 YO guy who is going for it hard - I'm satisfied with much less.
__________________
calmloki is offline   Reply With Quote
Old 04-25-2009, 09:43 PM   #52
Recycles dryer sheets
 
Join Date: Jan 2005
Posts: 322
my mom ( and dad goes along for the ride) on a small scale. I had a condo, sold to tenant of several yrs, attorney with steady pay who took the loan from my parents. Guy got a cheaper mortgage, and parents got assured rate better than CD. Most recently she did a loan to my cousin to build a pool, paid back over 5 mo at 7%.
__________________
P.S. is offline   Reply With Quote
Old 05-04-2009, 01:15 PM   #53
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 5,459
Latest is that we got our 2 points on the beach front 2nd loan mailed back to us from the title company - silly game loaning money and then having 2% of it mailed back to us, but i kinda like it.

Also sent a return receipt requested letter off to the lawyer for the second position loan handling the foreclosure on the property we have a first on. Just to point out that we do have the first and asking that we be kept apprised. I guess (with regard to our borrower taking out a second without our permission & in violation of our contract) one can do anything one wants as long as one doesn't get caught and makes payments as agreed. We wouldn't have found out had he not had the foreclosure filed against him. Lawyer we hired says we're in fine shape and need do nothing, but I wanted to be sure the foreclosing lawyer had been informed by us of our claim. Belt and suspenders.
__________________
calmloki is offline   Reply With Quote
Old 05-04-2009, 07:01 PM   #54
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Thanks for keeping us update a very interesting alternative investment.

A couple macro question what percentage of your assets are involved in total with real estate lending. I assume you treat as a fixed income when looking at AA.

Second and more importantly, roughly how much time do you put in on a monthly/quarterly/annual (what ever is easier) doing the investigation, handling the paperwork, talking to lawyers etc.

thanks
__________________
clifp is offline   Reply With Quote
Old 05-04-2009, 09:04 PM   #55
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 5,459
Quote:
Originally Posted by clifp View Post
Thanks for keeping us update a very interesting alternative investment.

A couple macro question what percentage of your assets are involved in total with real estate lending. I assume you treat as a fixed income when looking at AA.

Second and more importantly, roughly how much time do you put in on a monthly/quarterly/annual (what ever is easier) doing the investigation, handling the paperwork, talking to lawyers etc.

thanks
Bearing in mind that most of our nut is in rental property and it's kind of hard to ascribe a value to that before sale... Assuming what i am pretty certain we could get for negotiated prices on the places and subtracting about 25% for taxes i figure we have our home F&C, about 5.7% in stocks & bonds, about 21.5% in property loans (including $50k for a home sale we carry paper on @ 7%), about 57.4 % in rental property and the remainder in PenFed Cds and such. I haven't set myself any rigid percentages to hew to on fixed versus equity - just happy to make money, sad not too.

Time-wise: to date we have bought two hours of lawyer time. Others could buy lots more, but we're pretty trusting and have great faith in reading contracts and title companies. Loans are kind of like properties - if they are right it doesn't take us an hour or two to decide on them - the 4-plex we loaned on was that way - did a drive by to be sure they were what we thought, checked the terms, and made the loan. Maybe an hour or so getting the lowdown on a place. Sometimes I might have spent 10-12 hours on a loan opportunity - seems to be a sign the loan isn't worth doing.

We do look at maybe 6 or so loans before making one, but they are mostly local, so maybe an hour or two each if we do drive bys. Looked at a few loans up in the mountains and the latest over on the coast, but those were thinly disguised fun drives. Once the loans are made i just check whatever bank we have the payments deposited to to be sure the payments get made once per month. Spend much less time than looking at CNN or morningstar to see what our stocks did for the day.

Timewise they take up way less of my time than the rentals and return something comparable, though i still think property tracks inflation and cash doesn't.
__________________
calmloki is offline   Reply With Quote
Old 05-05-2009, 07:56 PM   #56
Full time employment: Posting here.
Arif's Avatar
 
Join Date: Jun 2005
Posts: 761
Calmloki,
Thanks for sharing your experiences with your RE notes. As a die hard real estate guy I am always looking to diversify from the typical rentals. When I slow down I think this would strategy would work very well.
__________________
You take the blue pill - the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill - you stay in Wonderland and I show you how deep the rabbit-hole goes.
Arif is offline   Reply With Quote
Old 06-13-2009, 12:25 PM   #57
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 5,459
The beach condo loan is 2 weeks late on their first payment - the larger project loan they were counting on hasn't happened yet. Of more concern is an unsecured loan we made to a real estate company - the company has closed up shop and the primary is now hawking vitamins and wanting to rewrite the loan and borrow more money. His interest only payment is also several weeks late - not an auspicious sign. If the real estate company loan goes bad it will neatly wipe out a year's worth of our total lending interest income. Lesson (re)learned: fancy office and a table with five suits is trumped by an old farmer with bad teeth and good collateral. Always get security.

We'll see what my friendly call generates in the way of improved performance. Will be looking at another local loan to a farmer with 190 acres looking for a 30% LTV.

In other news, 8 scheduled vacancies this month, including one eviction. One is already re-filled, another has an ex-tenant ready to move in as soon as the current tenant vacates. Still more vacancies than the norm - going to be a busy time. One little ex-rental house still sitting on the market, though i'm getting lots of lookers. Lending still looks like it will take less time - but it has to be profitable...
__________________
calmloki is offline   Reply With Quote
Old 06-13-2009, 12:31 PM   #58
Recycles dryer sheets
 
Join Date: Oct 2005
Posts: 325
How many properties do u own?

I have 6 properties consisting of 10 units and am thinking about trying to expand to about 20, maybe 25 properties.

Any advice?
__________________
CybrMike is offline   Reply With Quote
Old 06-13-2009, 01:04 PM   #59
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 5,459
Nine places, 51 units counting the house we are trying to sell. To a great extent more is not that much more work - you're tied down anyway, so more places just makes it easier to spend the money on tools and supplies and easier to get a good relationship with painters & carpet layers & such. 40 units was probably a sweet spot for me - i was in better touch with my tenants and feel i gave better service - could be that i'm just getting older and crankier and have seen the same sad stories too often.

For me, multi-units were a revelation - much easier to care for with a tiny percentage of the roof & exterior wall/unit. A vacancy in an 8-unit is of little consequence vs. a single family home going empty. We felt that though multi-units had better cash flow that the single family homes would be easier to sell. So that theory is not working out so well right now....

Exit strategy is a big problem. Our stuff is paid off and pretty depreciated out, so a sale will be a major tax event, leaving us with maybe 3/4 of the property value to generate income with. The Siren call is to roll the properties into bigger and bigger places, riding the income and depreciation, then dying and leaving heirs with a stepped up basis. No kids here and screw the heirs - let 'em make their own!

That's why i've been doing property loans - the hope is that the interest income will replace the rental income and that loaning out money at higher rates on after tax value of the sold properties will be an emotion neutral replacement for landlording.
__________________
calmloki is offline   Reply With Quote
Old 06-14-2009, 02:11 PM   #60
Recycles dryer sheets
 
Join Date: Oct 2005
Posts: 325
Thanks for the info. I'm in Indianapolis and we don't have many 4-unit buildings or 8-unit buildings. We have some doubles but they are mostly in bad areas. We also of course have 100+ unit apartment complexes but not much in between.

For now I've been buying up single family homes since I'm getting them for $20K and $30K and renting them for $700 - $800 per month. The return there is phenomenal and I've got very cheap labor to fix them up and deal with the maintenance headaches. I probably wouldn't want to deal with it otherwise since most of the houses I buy need $5 - $10K of work.

I'm getting ready to start branching out into properties that are going to rent for $1200 or $1300 a month. I just looked at one the other day listed for $87K and needs maybe $25K of work. This property sold for $154K 2 years ago. Hoping that I can have $100K in it when its ready to rent out. We'll see if they'll let it go that cheap (its bank owned).
__________________

__________________
CybrMike is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Overthinking Funding Early Retirement? FIREd FIRE and Money 27 06-02-2007 04:56 PM
Funding a bypass trust SecondCor521 FIRE and Money 3 05-24-2007 01:45 PM
Alternative investment: Private mortgage loans calmloki FIRE and Money 31 03-19-2007 11:03 AM
Source of FIRE Funding bbuzzard FIRE and Money 35 12-06-2006 12:31 PM
Funding your cash flow WilliamG FIRE and Money 1 04-15-2004 08:05 AM

 

 
All times are GMT -6. The time now is 03:21 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.