EXAMPLE OF A NON PERFORMING NOTE
Here is an example of a non performing note I’m picking up in, Indiana with my Roth IRA.
The borrower’s UPB (unpaid principal balance) is $31,817.47. They are 5 months behind. Once reinstated, their monthly P&I (principal and interest) payments will be $264.61, or $3,175.32 per year. My purchase price plus work out cost will be $17,501.28. That is only 55% of the home’s value, which means I have significant equity in case the borrower falls behind and I have to foreclose on their home.
$3,175.32 (yearly payments)/$17,501.28 (purchase and work out) = 18.14% ROI
The great thing about notes is there are many options. My first priority is to work things out with the borrower and get the note re-performing. If that works, then I can keep it for cash flow, or sell it after 12 months of on time payments and collect the equity I have created by “rehabbing” it. Or if that doesn’t work, we can work with the borrower and create a cash for keys or deed in lieu scenario. We can also work together on a short sale. Being the lender, I can approve a short sale pretty quickly.
And of course, there is always foreclosure. I would rather see it sold at auction. But if not, we can “prehab “and sell it as an REO or I could keep it as a rental. Some even take a property back, rehab it, and resell it with owner financing. So, what’s your IRA done for you lately?
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