Sometimes boring is good when it comes to investing. Here’s an example of making money with notes in a way that is very low stress. This is a performing note I closed on at the very beginning of last year and am holding in my SDIRA.
Performing Note in Council Bluffs, IA
One of the reasons I bought this note is because it was on the route of a family Christmas trip last year, and I had the opportunity to check it out for myself prior to buying. The home was in good shape and the neighborhood was actually better than I had expected. Its basically a blue collar neighborhood with the vast majority of homes showing strong pride of ownership. The BPO value was $75,000 so there was a lot of equity. In hindsight I probably paid more for the loan than I should have, but I still had the equity protection and I was able to buy it at enough of a discount that if it became non-performing I would be able to pursue a forfeiture and still make a profit.
Total investment: $28,663 (funded 1/2/18)
Purchase price: $28,400
Due diligence and recording expenses: $263.00
Total income to date: $3452.16
12x payments of $317.68 minus $30 monthly servicing fee ($287.68 net)
Current note status:
UPB = $34,853.19
Payments remaining: 294
Estimated value = $29,600 (~85% of UPB)
Return if sold today:
Cash out = $28,900 (assuming some additional selling related expenses)
Cash in = $33,000 (rounding)
Return = $4,100 / 14.1%
Return holding until maturity (assuming all payments made): 11.3%
Rate = (306 payments, $287.68 net per payment, -$28,663 in total expenses)*12 months per year
I have no plans to sell this and will continue to hold it in my SDIRA. Of course its also very unlikely the borrower will make payments for the next 24 years. Most likely they will refinance it or pay it off outright at some point, and there will be a nice bonus if that happens 🙂
While you can certainly find better deals on performing notes, I’ve been very pleased with how this one has turned out so far. Boring can be good. In the coming weeks and months I’ll have some non-performing note case studies that have been very far from boring…..