I recently purchased a 3rd position and am in the process of foreclosing. If someone buys at the sale, then I will make 100% on my investment (bought cheaply). If, on the other hand, I end up with the property subject to the two senior liens, I stand to make lots more because there is substantial equity in the property after all liens are paid. So I am pretty interested to see if there are ways to purchase other liens; I have a couple of sources for judgement liens, which are okay but in this state there is a 6 month redemption period during which time you can’t resell the property. So I am looking for deeds of trust with equity behind them — so far these deals (one offs) are hard to find but well worth the effort. The foreclosure process is very specific and no errors can be made in notifications during the 3 months it takes to get to the sale.
If I take possession of this property, I plan to flip it as quickly as I can because I think the housing market will be lower in the future. Better to take a smaller profit today rather than speculate on what might be a larger one later.
On another note, I own some cash flowing properties. There are monthly expenses and monthly income, and it nets out to an average of $1000 per month positive cash flow. Recently I was made an offer to sell these properties, and so I had to decide what they were worth.
I compared them to an annuity. It is possible to buy an annuity that pays $1,000 per month, for somewhere between $275,000 and $325,000; The annuity has interest rate and systemic risk associated with the underwriting insurance company. My investment has risk associated with depletion, regulatory requirements, and tax laws. I figure the risks are about the same, and neither investment involves tenants or repairs.
So if I use these examples as a “baseline”, what do I have to do in rental properties (commercial or residential) to get the same sort of return? Right now (and I think this is atypical) I can buy a $50,000 property and rent it for $800 per month; around $500 / month NOI which is ok. So it takes two of these to do the $1000 a month positive cash flow, or $100k (more or less). This seems like a better investment than an annuity, unless the underlying real estate falls in value dramatically, or the rental market tanks again.
The annuity does not have these risks. The other investment I am in has commodity price risk, but no systemic or vacancy problems. I’m liking my little investment more and more. They offered me 60k for it and I’m thinking there are other investments like this one that could be purchased on a 5 year payout, because there are people desperate for cash.
So the “buy a note” is speculation, and the cash flow investment(s) are … investments.
