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We have been approached by someone we know that has a contact with a bank. The bank is now dealing with lots of notes that are behind or are already in default. They want to sell these notes off and are asking for offers.
We were presented a preliminary list of 437 notes from all over the United States to see what we would, and could do with them. We are told if this goes well, then the “flood gates” will open with all of their bad notes.
We are now doing research on the notes and properties so we can select ones we feel we can work with. If we make the offers in writing and some are accepted, we will run everything through escrow.
Question: We have never bought notes in bulk before. We have bought one here and one there on a particular property we were working on: usually buying a 2nd at a discount.
Will buying in bulk be looked at differently by the IRS or some other government office and require us to be licensed in some way, other than just a private real estate investment company ? What else should we look out for ? Is this too good to be true ?
Scott Townsend
From Jack Miller:
Anytime you buy anything in bulk, you’ve got to expect a lot of things to go wrong. For this reason, unless you are going to make a large bundle, it may be too much work to be worth it. When you leave your own area, you’ve got to learn the laws that apply in the area where you are buying Notes. As to the discount, when the RTC closed down hundreds of S&Ls, they were offering $1 million bundles of defaulted Notes for 1.5% of face value. Those who bought these bundles and spent years either collecting on them or foreclosing them no doubt made a lot of money, but they earned every penny of it. My advice would be to try to buy a few Notes in my own locality to see how it all turned out. Over the past couple of years, I’ve been able to buy individual defaulted notes for from 10% to @0% of the unpaid balance. This might be a good place to start making offers.
As far as the IRS is concerned, all your profit is going to be taxed as ordinary income. So long as you buy the Notes with your own money and hold them as investments, you should have few problems with regulatory agencies, but when you start re-selling them, you may be required to have a Mortgage Brokers license issued by the State in which you sell them. You’ll have to check this out with each State to see what is required.
Thank you Jack…
We were planning on starting out slow and deal with only notes and houses we could “drive by” locally, (with-in 3-hours) just to get a feel for it.
Just so I’m clear on the “re-selling” part…
If we buy a discounted note and keep it, it should be no problem. But, if we buy it cheap, then put it out for sale with a spread, that’s where we may run into issues ?
I’m wondering if we couldn’t just be a “go between” with the bank and the end buyer without actually “buying & re-selling” ? Just charge a “finders” type fee, or something, for putting the bank and the buyer together ?
Scott Townsend
Thank you Jack…
We were planning on starting out slow and deal with only notes and houses we could “drive by” locally, (with-in 3-hours) just to get a feel for it.
Just so I’m clear on the “re-selling” part…
If we buy a discounted note and keep it, it should be no problem. But, if we buy it cheap, then put it out for sale with a spread, that’s where we may run into issues ?
I’m wondering if we couldn’t just be a “go between” with the bank and the end buyer without actually “buying & re-selling” ? Just charge a “finders” type fee, or something, for putting the bank and the buyer together ?
Scott Townsend
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