First NPN Experience · Real Estate Note Investors

First NPN Experience

Wanted to follow up and offer an overview of my first npn purchase, as discussed with Robert, in hope that there are some learning/teaching points for discussion.

This deal was back in 2018, and I had become interested in NPN's after doing a course with Scott Carson. I enjoyed his course and learned a lot, and was eager to get my feet wet.

I formed an LLC and scoured some tapes from various brokers, and eventually found a cherry pick opportunity for an sfr in Saint Louis, MO. The note was a CFD (Contract For Deed) and the home was a small, older, but attractive brick home with a nice front porch, 3/2, with garage in back, and on a reasonably attractive street.

The UPB was approx $32K and the FMV was around $45-$50K based on comps. ..I made a bid and we ultimately closed at 40% UPB, or about $13K. I was excited and we started the diligence period.

We obtained the collateral file and pulled O&E reports and checked utilities and tax accounts, and things seemed to be in reasonable order.

The owners were a couple who operated their own hair salon. ..We also reviewed their credit reports. We ultimately learned that the husband had recently passed away in an accident, so the wife was on her own. ...That's obviously a tough situation, and maybe should have been a red flag, but the actual monthly payment wasn't too high, and the arrears weren't too bad. My approach is patient and compassionate, so I was optimistic we could work with her.

We had the loan boarded with Madison Management and they were very helpful and sent the borrower welcome letter and conducted the reach out. ...Initially things seemed promising as borrower was communicative. We wanted to be compassionate, and with Madison's help, we wrote off some of the arrears and re-structured the note to reduce the payment and bring her current. ...Again, my wife and I were optimistic about the workout and hoped to let it perform and season for awhile.

Unfortunately, after a couple months, borrower had problems and payments became late and partials. ...So, again, given borrower's personal circumstances, we wanted to try to work with her. We executed a second re-structure in hopes she could make it work. Unfortunately, problems cropped up again within just a few months, and we began to realize things weren't going to be easy.

Given that we had CFD, we had a strong position, and we worked with an attorney to firmly make that clear to the borrower. Unfortunately, she just wasn't able to perform.

At that point, about a year had passed, but we were ultimately able to negotiate with borrower through Madison and the attorney, and able to offer enough in a "cash for keys" deal to allow her to get settled elsewhere. ...That was a seeming success, but we had also used a Forced Place insurance policy and had a roof claim due to hail, which was an additional complication.

We ultimately used a local Preservation company to clean out the home and then listed it with a local broker. ...We finally sold it a couple months later for about $35K. My expenses, including purchase price, had totaled up to about $25K, so after commission, we had a modest gain. The road was obviously bumpy, but we believe we did everything we could to work with the borrower.

I welcome feedback and or critiques. I'm certainly hoping to find some better deals in the future although I think this was good experience.

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