October 19, 2009
One Man's Trash...
A few weeks ago I wrote about the quandary many note holders and property owners have found themselves in recently. On one hand, they have an asset that today is worth FAR less than it used to be. On the other hand, they are at wit's end about what to do with it. The analogy was we were the aspirin for their headaches.
This week Proficient Note will fund a nonperforming note on a cute little property in Flint, Michigan. Those of you who know anything about Flint understand it is the poster child for all that is wrong with the American economy. Currently at 25%, Flint's unemployment rate is one of the worst in America, no thanks to the loss of some 70,000 jobs at General Motors. Some estimates say one in four properties in Flint is vacant.
The intelligence of buying a note on a property in Flint, then, (and nonperforming, no less) probably has many wondering what we're thinking. I like to say opportunities come in all shapes and sizes. What if I told you we weren't paying a penny for the note?
Currently the borrower on this nonperforming note owes $54,000 and change on the property. A market analysis estimates the property is only worth about $24,000. We are buying a portfolio of performing notes from this note holder, and this note in Flint is just being thrown in as a 'gimme'. Apparently the note holder just wants to be rid of the headache.
The borrower on the nonperforming note is an investor. I'm guessing he couldn't keep the property rented, and quit paying when his last renter moved out, realizing he owed far more than the property was worth. What if we offered him the title to the property for just $10,000? What if we offered to modify his existing debt to bring it in line with the current property value? Do you see all the opportunities inherent in this deal?
Even if the borrower wants nothing to do with this property and simply wants to deed it over to us, think of the possibilities. We could seller-finance the property to a qualified buyer at far less than the market value of the property. We could rent it to a qualified tenant at less than market rents. Worst case, we could sell it to opportunistic bulk investors and still clear a few thousand dollars.
We confront opportunities like this every day. The note holder in this case will be happy to be rid of a nonperforming asset. We will be happy to address all the possibilities of turning this into a cash-flowing asset. It's a win-win situation.
Risks? None, really. We know we will make money on this deal regardless of our exit strategy. (a zero cost basis really helps in that regard) The most interesting (and fun) part of the transaction is just seeing how it will turn out. Stay tuned - maybe I'll be writing about it in a few months!
Make it a great week.
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