Jimmy Moncrief is both a real estate investor and an underwriter at a bank that specializes in real estate investment properties. This combination gives him a very unique perspective for note-buyers like you.
He has made an exclusive negotiation document for DistressedPro.com readers, which can be found here.
NOTE PURCHASE CASE STUDY â€“ Three Triplexes
Occasionally, I get asked by professional note-buyers to do some consulting and underwrite a deal. I love underwriting note-deals because of the challenge and their complexity. This particular deal was very worthy of the term: â€œcomplexity.â€
Terms of the Deal:
- Legal Outstanding Loan Balance: $271,585
- Borrower: Redacted â€“ for profit, llc that was owned by a non-profit
- Interest Rate: 7%
- Monthly Debt Service: $4,050
- Payment Status: Payments were being paid on-time
- LTV: 85%
- The Seller: Top 10 Bank
- Debt Service Coverage: $4,575
This deal was fascinating in many ways. Rather than create a 10,000 word blog post, I will simply share the three main issues that made this deal a home-run. Be sure to keep reading to find out what happened at the end.
The bank that was selling was a top 10 bank and didnâ€™t have the man power to actually understand the number of moving parts in this deal. They were under severe regulatory scrutiny and needed this off the books immediately. If the bank did any amount of research with the borrower, they would have learned the property was actually under contract for $325,000.
The borrower was able to make timely monthly payments, because the non-profit that owned the real estate holding company would move cash to the borrowers account. We actually had lunch with the borrower and I was able to learn a significant number of issues with the deal. The major issue was they couldnâ€™t sell the properties due to regulatory issues surrounding their charter and their lease-agreements they had with tenants. Therefore, they were actually happy that someone bought the note and was foreclosing!!!! This is why you need to do the homework folks!
Location, Location, Location
Iâ€™m sure you are tired of hearing the adage, but it really is true. You can make a lot of mistakes when your buying a property (or note) where everyone wants to live. The three triplexes were in a very trendy neighborhood. This gave the note buyer a significant comfort in buying the note.
The plan was to foreclose on the properties, renovate the properties and double the rent rate to a more standard market-rate.
What actually happened?
On the day, the note buyer was at the courthouse steps ready to take control, he was met with the other real estate investors who had the property under-contract. They had a cashiers check, and my client (the note-buyer) made $104,691 in exactly 30 days.
As an underwriter, Iâ€™m a cynic by nature and I wouldnâ€™t believe this story unless I saw the numbers with my own eyes.