Note Questions

My joint venture partners frequently ask me the same question. I want to list just a few of them.

1. What happens if need to foreclose and the house needs more work than estimated, do I have to come up with more money?

The answer to this one depends on what my Joint Venture partner wants to do.

When we foreclose we get to point where a major decision has to be taken and I always consult with my Joint Venture partner on the different options I have on the table and the pros and cons.

If the best course of action is to rehab the property and the allotted amount for rehab is not enough, then the Joint Venture Partner has the option to make a hard money loan to the partnership at a fixed interest rate. That interest rate would be a cost for the partnership, but the Joint Venture partner will earn that interest for himself.

In case that the Joint Venture partner feels that it is worth making the investment but does not have the available funds, it is my duty to find a hard money lender that will. I also have the option to extend the loan to the partnership once the joint venture partner refuses to exercise his first option to do so.

2. What happens if we don’t spend all the funds in an investment, will that be a cost anyway?

When we structure a joint venture deal we have to plan for all major exit strategies. One exit strategy usually requires fewer funds than other. The most expensive is foreclosing and deed in lieu. But if the borrower reperforms, then we require spending fewer funds.

How do we work the math? Easy, we use normal accounting practices, we account for income, cost, and expenses. If it wasn’t spent, it wasn’t spent.

I break down every scenario in detail when I send opportunities to our investor list, and our regular reports show a detail of income and expenses. No funny business no monkey business.

3. Will I be named on the note or title?

Joint Venture Partners are not named on the note or title. Our joint venture partner needs to stay as a passive investor and avoid being mentioned in any possible lawsuit that may occur. (foreclosure defense or wild claims).

4. Is a return guaranteed?

Returns are not guaranteed, I don’t know beforehand how a note deal is going to turn out. We will put our best efforts to make the most out of every deal, but no one can guarantee a return on any investment. Risk-reward relationship exist in every investment I have found in life, notes are not exempt to this reality.

We do perform thorough due diligence, get insurance on the property securing the note, and do our best efforts to make the investment as safe as possible.

5. When will we get title to the asset?

Our preferred exit strategy is helping the borrower pay again and keep his house, we might never get title to the property, as we are investing in the debt secured by the property.

Our investment is secured with a lien on the title.

When we invest in land contracts or contract for deeds, we usually get the title in 20-50 days even if we get the loan to perform, because that is the way land contracts work.

6. How long will the deal take?

It depends on the borrower and the exit strategy that best fits them. Our shortest deal took 4 months and our longest so far has been over 14 months. It all depends on the exit strategy, and the exit strategy depends on what the borrower wants to do and what they can afford.

In case of foreclosure, it also depends on multiple factors such as the state, the type of loan, date of the note and percentage of principal balance paid.

A ballpark figure is between 6-18 months.

7. Can I invest with my IRA?

Most of our joint venture partners are IRA accounts. So definitely yes.

8. After I go thru the due diligence process to get into the investor list, how long before I see opportunities?

We don’t have a set date for sending opportunities. We are always buying, but we don’t always buy. From time to time we don’t see quality assets, so we don’t buy, and some other times we are flooded with opportunities and send them as we acquire them.

9. Can I lock a deal once I like it?

We can lock a deal for you for a few days, but if you request to lock a deal and don’t come thru without a valid reason, you will get blacklisted and won’t receive any further opportunities.

I understand that people get cold feet, but we have to move forward as a company and we need to help as many borrowers and partners as possible, therefore we can’t freeze opportunities for partners that have not overcome the analysis paralysis phase.

If you have a question that you feel we missed, please leave it in the comments below.