How To Buy Mortgages From Banks – The Deal Sources

How to Buy Mortgages from Banks

Here is a question that is asked quite a lot.

“My understanding is the federal government is going to be offering financing to private equity and hedge funds to buy up the bad debt aka defaulted mortgages.”

It seems to me, that this would create more competition?

“What are your thoughts on this?”

My thoughts are this:

4 Buckets – How to Buy Mortgages from Banks

In terms of “competition” it just adds to the deal source for buying mortgages from banks.

There are 4 buckets that exist within the note buying industry:

a) $100 million and above – Big Boys

b) $20-100M – Big Boys

c) Small boys – buy $1-20M

d) Mom and pops – buying less than $1M

The majority of the shuffling is happening, in my opinion, at the big and mid-boy stage, in terms of raw dollars.

Now, think about their financials for a second, these are investors, not originators.

The only thing that they are hungry for is the yields on their note buying investments.

Defining Your Deal Sources & How to Buy Mortgages from Banks

If you fall into the mom and pop or small boy category, guess who just became your new deal source for buying notes? Yes, the mid and big boys.

They’re looking for a big IRR (e.g. quick flip on their real estate notes) and they’re buying more competitively than the small boys and the mom and pops.

View them as a note buying deal source, partner up with them, come up with some transparent “Cost plus 5? type of approach where you give them 5 points in exchange for cherry-picking their portfolio and piggy-backing off their due diligence, and why wouldn’t they be interested in selling notes to you?

So if you’re worried about the drip from the water fountain (or the firehose!) being intercepted in some way, just shift yourself a little so that you catch the drips from the guy who just got in front of you.

And you can always look for other opportunities to buy your non performing notes.

Hope this information helps you.

Take some action!