Can someone explain this concept and how it may or may not be better than investing in an actual park for your portfolio? I spoke to a gentlemen today who promises 18-21% cash on cash returns and maybe I am thinking its too good to be true? Thank you!
Buying notes is extremely dangerous. A smart borrower can tie up the note in court for years before you can take control of the property through foreclosure. I have written many articles on this. The only way to buy a note is to have the borrower sign a “Deed in Lieu” BEFORE you buy it. You can normally trade the borrower a Deed in Lieu for forgiveness of their personal recourse on the loan.MANY people have been conned by buying notes and then getting screwed. A note is a piece of paper that might get you the park back – after years of legal bills – and then it’s 100% vacant and destroyed (which the borrower normally does to get back at the bank). Without a pre-signed Deed in Lieu, a note is a piece of junk.Banks know better, and that’s why they will sell notes a huge discount.
Thank you Frank. I thought it smelled pretty funny. I called about a park but the guy told me he has sold two last week, and the other deal for the notes and they package them like banks. I’m finding that there are a lot of people in this business that try to pray on newbie’s. The assignor on my first park tried to fool me with packaging the park with higher cap rate and cash flow, when I discovered during due diligence I pulled out. However, I ended up working out a good deal with the actual owner.
As Benjamin Franklin said “diligence is the mother of good luck”. Never trust anyone and only trust scientific due diligence – then you can rarely get in trouble.
Totally agree! Thank you Frank!