Exit Strategy

Given the market conditions and the high rents in the area, we decided to sell the property as a fully loaded rental. This would be the ideal situation for a landlord/investor who did not need the cash flow right away and wanted to deploy “idle cash” from his/her IRA for future accumulation.

Implementation of the Exit Strategy

We loaded the property with a renter paying $1,200 a month and sold it as a “turnkey” rental for $100,000 with 50 percentdown and $50,000 seller financing at 5 percent interest for 60 months. After taxes, insurance and property management, the net rent/cash flow is $943 per month.

Remarks

After 60 months, the investor will have a free and clear house with all the cash flow going directly to him.For us, we received $50,000 down payment up front and for the next 60 months we have a $943 a month cash flow. Subsequently, we will give a free and clear Deed to the investor who will have a free and clear house and a monthly cash flow of $943 for himself plus creating generational wealth for his/her heirs.

Exit Strategy

We purchased this non-performing note as an already foreclosed asset or Real Estate Owned (REO) from a Hedge Fund. The property was vacant but did not need any work as the previous owners had rehabbed it prior to getting a divorce. Our research showed the rents in the area were $725 per month. The plan was to sell the property to a retail buyer with seller financing.

Implementation of the Exit Strategy

We sold the property with seller financing for $76,167 with 10 percent down for 20 years. The monthly payment minus taxes and insurance yields a monthly cash flow of $623 for 20 years (240 months) or $149,520; all from a $12,200 investment.

Remarks

A contingent strategy is to let the loan “season” for a year and then sell the Note on the secondary market to an institutional investor for 90 percent of the Note value.

*Seller Financed Value

Exit Strategy

This was a non-performing note that we acquired from a Hedge Fund at a deep discount because the borrower, a retired teacher, had stopped paying the mortgage. The value of the house had dropped after the 2008 recession. The retired teacher wanted to stay in the house, but she couldn’t afford her adjustable rate mortgage she had and had been frustrated with her bank as all efforts to modify the loan had failed.

The goal was to make every effort to have the borrower stay in the house. She also stated all she could afford was a payment of $500 principal and Interest plus taxes and insurance.

Implementation of the Exit Strategy

Since we bought the note as such a deep discount, we were able to reduce the borrower’s balance to $60,000 and load all her delinquent payments to the back end of the mortgage term.

Remarks

After we were able to modify the loan, the terms and delinquency charges, we now have a re-performing loan in our portfolio with a $49.06 monthly cash flow and a total revenue of $179,661 for 30 years with a $2,000 initial investment.

Exit Strategy

The note was purchased as an asset for our portfolio for cash flow. However, shortly after acquiring the note, an investor approached us looking for a note with cash flow for her retirement with an average return. The strategy was then to sell 120 payments, or 10 years of the note to the investor, for a Return on Investment (ROI) of 10 percent. After the 120th payment is made, the $878 monthly payment will come back to us for the remaining 228 months or 19 years. Again, 10 years of payments + 19 years on the back end equals the remaining term of the loan of 29 years.

Implementation of the Exit Strategy

Also, it is worth mentioning that the investor paid $70,000 for 10 years of payments, while we paid $70,000 for the entire note. This is possible because we purchased the $100,000 at a discount and paid $70,000; therefore, our internal ROI was 14.8 percent. It was possible for us to offer the note at the note rate of 10 percent for the investor’s retirement account.

Remarks

This was an investment where the investor participated in a partial purchase of a performing note that pays the “coupon” rate on the mortgage for ten years. It allowed the investor to receive payments of $878 per month. For us, we gave up 10 years of payments so our investor could profit right away, but on the backend, we will receive the remaining term of the mortgage while making certain the investor gets paid first.

Exit Strategy

The original borrower had left the state, and, for all intents and purposes, the house was abandoned. After taking possession of the property through foreclosure, we had to deal with overgrown weeds and other issues like code violations and two years of unpaid property taxes. We could see the potential in the property, but we were a bit overwhelmed by the sheer amount of work it needed. Since the property is in such a remote area and was not easily accessible to all our vendors, we found ourselves with the challenge of what to do next. It was at this time that we received a phone call from the newly elected mayor of the city in question. She indicated that she had learned about us being the new property owners. Then she informed us that she wanted the property cleaned up because she was not going to tolerate any outside investors who did not take care of properties in her city. She had been newly elected and was very aggressive in her approach to keeping the city clean. This is when, in a move of desperation, and resourcefulness, I adroitly suggested that if she could work with us in cleaning up and rehabbing the property a little bit, we could have a positive outcome. The house could be a functioning tax-paying property in the market again, with a deserving buyer purchasing the house from us. A once toxic asset could be turned into re-performing one, resulting in a win-win-win situation.

The mayor agreed to our proposal and sent city workers to clean up the place.  They cleaned the inside and even power washed the facade.

A week after the crew had cleaned up the place, we received a call from the mayor.  She stated that she believed she had found a buyer. She said this potential buyer was a single mother with two teenage children looking to buy a place she could call her own. Even though she had a 530-credit score, the mitigating factor was that she had a steady job working at the local hospital. We immediately retained the services of a RMLO (Residential Mortgage Loan Officer) in order to be compliant with the Dodd-Frank act. After evaluating her ability to pay, we made the decision to sell her the house with seller financing.

Implementation of the Exit Strategy

We sold the property for $45,000 with a $4,000 down payment. The balance of $41,000 is being financed over 20 years at 9.9 percent interest. The monthly payment, after servicing fees and other miscellaneous charges, is $495.00. The borrower has been making her mortgage payments for over a year without any problems.