118 Going Price Range Of Performing First Position Mortgages With Equity And Good Payment History
For today’s “Ugly Question.”
“Would you know the going price range of performing first position mortgages with equity and good payment history?”
Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the “Small Builder” borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and “Ground-up Construction Loans” for investors only in NC, SC, GA, VA, and TN (some areas of FL, as well).
As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.
Wendy Sweet (00:00):
It’s it looks like just the quarter of the rim. Does it really bother you?
Bill Fairman (00:04):
Hello! Were over here carrying on on our little conversations. So, what if you had a note that you wanted to sell, do you know how much to sell it for, do you know how much it’s worth to you or somebody else? Right?
Wendy Sweet (00:20):
Whatever that pay for.
Bill Fairman (00:21):
That more on our Ask an Ugly Questions Segment coming up next.
Jonathan Davis (00:28):
Yup. See? See, I told you.
Bill Fairman (00:37):
Yes. We’re always trying to be perfect here at Carolina Capital Management and yes, thank you for coming to our Active Income passes, Passive Wealth show.
Wendy Sweet (00:49):
That’s easy for you to say.
Bill Fairman (00:49):
What? We are Carolina Capital Management. I am Bill Fairman ,Wendy Sweet, Jonathan Davis and we are lenders in the Southeast. If you are interested in borrowing money in the Southeast area on projects, mostly in the Southeast. Go to CarolinaHardMoney.com click on the apply now tab. If you’re an investor looking to get passive returns through being the bank, click on the accredited investor tab. Don’t forget to like, share, subscribe, hit the bell, all that good stuff. And we like these to be as active as possible or interactive as possible. So we do have a comment section on the side or underneath, depending on the platform that you’re on.
Wendy Sweet (01:35):
That’s right so please use that.
Bill Fairman (01:35):
So yeah, we read the questions, especially the ones that we want to answer. So I guess we should,
Wendy Sweet (01:47):
Start off with the news!
Bill Fairman (01:49):
Yes, let’s do the, what did they call that?
Wendy Sweet (01:52):
Bill Fairman (01:52):
Wendy Sweet (01:54):
Bill Fairman (01:54):
Wendy Sweet (02:10):
This just in.
Bill Fairman (02:10):
I don’t know how breaking it is. I really, frankly, I never got to hear any of the unemployment numbers.
Jonathan Davis (02:16):
Last I saw was like 830 something from the 23rd. And that’s the last number I saw.
Wendy Sweet (02:21):
Well, that’s a little lower, the 23rd of January.
Jonathan Davis (02:25):
Wendy Sweet (02:25):
That’s a little lower than the week previously, which was up in the nines.
Bill Fairman (02:31):
So I want to talk about a couple of things that is pertinent and current. One of them is the frothiness in the stock market.
Jonathan Davis (02:44):
Wendy Sweet (02:44):
So what does that look like?
Bill Fairman (02:44):
So if you guys haven’t been paying attention, there, and since COVID, especially, there has been apps that are available for the retail investor, where they can go in and do a lot of day trading on their phones, you know, TD Ameritrade and a few others already had this, but this is called, I forgot the name.
Wendy Sweet (03:11):
Bill Fairman (03:12):
So it’s a Robin hood. So you’re anyway, you can get in and trade as a little guy,
Jonathan Davis (03:22):
Didn’t they get in trouble?
Wendy Sweet (03:22):
I thought they did.
Bill Fairman (03:23):
Jonathan Davis (03:25):
I thought they got trouble for misrepresenting the investments to them.
Bill Fairman (03:28):
Well, there was some,
Wendy Sweet (03:30):
Bill Fairman (03:30):
Yeah, but that’s still to be resolved because like anything that’s government regulated, the train moves a little slow. Anyway, then that said, they were saying, there wasn’t enough disclosures in what they were doing. But what has happened, I know that the big hedge funds have been under years of scrutiny because they don’t like that the hedge fund managers aren’t paying the same taxes as the big corporations are making money because they’re in a completely different tech structure than a big corporation. And they say, it’s not fair that the big hedge fund managers make billions in profit. And they only pay the little, teeny bit in taxes. Well, that’s the way the tax code is set up. Don’t like it? Change it.
Wendy Sweet (04:21):
That’s right. And it will.
Bill Fairman (04:22):
So what’s happening within the last few days is that, if you’re familiar with the stock market, do you have shorts? And then you have long. So people that buy stocks for the most case are in it for the long haul and then you can hedge your position by buying what’s called a short. So if it goes down, you make money, but if it goes up the stock price, then you have to add money to it, to cover these shorts, so to speak. So a lot of hedge funds in order to get, they will bet that a particular company is going to go downhill. So GameStop is one of them. And that’s the biggest one that’s in the news. GameStop. If you’re not familiar,
Wendy Sweet (05:07):
They’re up 650%, on their stock price.
Bill Fairman (05:12):
Just before COVID, they were one of these companies that were ready to file for bankruptcy because no one goes to the store anymore to buy a game. They stream it all. You don’t need them anymore. The only reason they’re still even open is because they sold peripherals that people needed for zoom and stuff to work at home. You know, when they were working at home, that’s where they go to get the hardware that that would help them work at home. No, uh, so that’s the only reason they’re still even in business, but for some reason they would get together with like Reddit and Twitter and any other social media. And they all decided let’s buy a bunch of games stop stock, a stock game stop stock, and that’s easy to say, and force the price up, which means the hedge fund managers that are playing the shorts have to constantly cover their short.
Wendy Sweet (06:10):
Is that illegal?
Bill Fairman (06:11):
Wendy Sweet (06:11):
Is that legal? To force stock price like that?
Bill Fairman (06:12):
It is not. Elon Musk has been doing it his whole career. He’s mad because people short his stock he’ll make an announcement on how well the company is doing or going to do and then the price goes up, and then these short people have to go in there and add more money to cover their losses. So this one particular fund manager, this, this past week lost $15 billion this week covering their short positions. But they’re doing the same thing with not just Game Stop, but it’s Bed, Bath and Beyond. Does anybody remember the Blackberry? Their stock is going through the roof. Have you seen a Blackberry lately?
Jonathan Davis (06:57):
It’s insane, what’s going on with the stock company today
Bill Fairman (07:00):
Blackberry didn’t even sell a hardware anymore.
Wendy Sweet (07:05):
Are they still around?
Bill Fairman (07:05):
Yes. They have patents on a lot of the technologies. That’s the business that they’re on now but company, you know, Coles, a few other the department stores that are, you know,
Wendy Sweet (07:20):
We’re going down because there’s a lot of Coles that have shut down.
Bill Fairman (07:23):
So all these people’s have typically short stocks and these people are going in and buying the crap out of them. And so the little guy is now the winner versus the big guy and if you’ll notice, all your big technology stocks, the stock market itself is actually starting to go down. Apple had a tremendous fourth quarter earnings.
Jonathan Davis (07:45):
Well, I love, I saw, I saw two headlines side by side and one was United States, US down three and a half percent in 2020 on growth, worst economic year of growth since 1946, right beside that Apple posts best quarter ever, $111.4 billion.
Wendy Sweet (08:07):
That’s make you wonder, doesn’t it?
Bill Fairman (08:07):
So, interesting. Their stock is down and they had the best quarter ever. They blew expectations out of the water and they also gave guidance. So future guidance that was greater than they thought, but their stock is down. Why would you think that?
Jonathan Davis (08:25):
Their stock is down? Why? Tell me.
Bill Fairman (08:28):
Because the hedge fund, where are the things, the hedge fund managers are getting the money to cover their shorts, they have to sell the stocks that are producing in order to cover this crap that they have over here
Wendy Sweet (08:40):
Oh, that makes sense.
Bill Fairman (08:41):
So they’re selling off. What does that do? That helps somebody who has, and you might think that the stock market is overpriced. And I believe it is.
Jonathan Davis (08:51):
I hundred percent believe it is.
Bill Fairman (08:51):
This kind of helps bring the stock market back down. So those people can now sell their shares and gain stock that is artificially really high and then go buy some Apple stock with it because now the price is down.
Wendy Sweet (09:05):
Yeah, yeah. That’s the game I can’t play. I’ll tell you why.
Bill Fairman (09:09):
Either way, that’s the point of all this rambling is.
Wendy Sweet (09:11):
Real estate is so much easier.
Bill Fairman (09:14):
Do you really want to play that kind of a game? Again, you could easily be completely wiped out in the stock market, but if you’re investing in a tangible, solid assets, the likelihood that you’re ever going to lose principle is pretty minimal. It doesn’t mean you won’t. I mean, it could happen, don’t get me wrong, but the percentages are well in your favor if you have tangible assets you’re investing in. Not just a paper, the promise to earn a profit down the road, that’s really what you do.
Jonathan Davis (09:51):
That’s the best secure with nothing.
Bill Fairman (09:53):
You know, the promise.
Jonathan Davis (09:54):
The promise. Yeah. That’s it.
Bill Fairman (09:56):
Earn more money down the road. Now, earlier in the week, again, they did the loan applications, which were up pretty high.
Wendy Sweet (10:05):
Bill Fairman (10:06):
You’re seeing a few less refinances because you’re thinking, well, I mean, rates are pretty low. Have we run through everybody that can refinance?
Wendy Sweet (10:17):
Well just about, and I’m talking to mortgage brokers and from what I’m hearing is that they’re finally able to take a breath. It hasn’t stopped by any means, and it hasn’t really dropped, but it’s slowed down to a more manageable situation for them
Bill Fairman (10:33):
This leads me to another thing. If you are in the mortgage business, if you’re a retail loan originator, please do not forget your relationships with your real estate agents and brokers, because,
Wendy Sweet (10:44):
Or your hard money companies like us. Cause we’d love to do some ones with you.
Bill Fairman (10:47):
Yeah. Well, when I’m getting to the point is don’t forget your purchase money sanction, because eventually the refinances will go away.
Wendy Sweet (10:54):
Will go away.
Bill Fairman (10:55):
The people in every economy are still going to be buying homes. I bought one when the interest rates for an FHA loan were 14 and a half. So people are still buying homes. Okay? Just don’t forget your realtor. That’s a relationship you need to have and you need to service them first. Your refinances are the bread. it’s the gravy
Wendy Sweet (11:16):
It’s a gravy now. And that, yeah, it will depart.
Bill Fairman (11:21):
Absolutely. Now home prices are continuing to go up.
Jonathan Davis (11:26):
Inventory is still low.
Bill Fairman (11:28):
So let me, I know people are worried about a bubble and the real estate market. So nationally prices are going up, but again, real estate is always local. If you look in certain areas like New York city prices are going down, so you have to look at the migration charts, right? Where people are leaving, prices are going down where people are going, prices are going up. There’s a couple of factors in why the appreciation keeps going up so high and I think it’s for the month of, and they have to look backwards. So for the month of December, or maybe it was November, I don’t know how many months they moved behind, but year to date is up 9% now. I think that’s pretty good, significant amount.
Jonathan Davis (12:14):
It’s not sustainable, but it’s nice. It’s nice.
Bill Fairman (12:20):
It’s not a bubble because it’s speculative. The prices are going up because of good old supply and demand. There’s a lot of demand and there’s not enough supply. What’s helping to continue to help raise prices is the fact that interest rates are so low, that if you’re paying 10% more for a house than you did last year, if you add that into a 30 year mortgage, that payments aren’t significantly different,
Wendy Sweet (12:49):
Right. They can still qualify.
Bill Fairman (12:50):
You can still afford for those prices to go up. What’ll happen, and I think, you know, I don’t know that they’re going to catch up with supply anytime soon. Did you guys?
Wendy Sweet (12:59):
Right. Not in our area, not in the Southeast where we lend.
Jonathan Davis (13:03):
I mean, to catch up with supply. I mean we’re years out. I mean, that’s what I’m seeing.
Wendy Sweet (13:11):
Bill Fairman (13:11):
So the only thing that’s going to change that is going to be interest rates going up and make it less affordable. And, you know, obviously prices will continue to go up, but when interest rates started to go up and then you’re going to see a, I don’t want to say a decline in prices, but a decline in the rate of an appreciation.
Wendy Sweet (13:30):
Yeah. And it might sit on the market a little bit longer than the couple of days.
Jonathan Davis (13:36):
The one or two days that we’re seeing right now.
Wendy Sweet (13:38):
Yeah, that’s happening now.
Bill Fairman (13:40):
Now, one thing that could affect supply is, you know, when they finally finished with these moratoriums on foreclosures, where it’s still kind of a speculative nature on how the big mortgage holders servicers are going to handle it, are they going to foreclose or are they gonna sell the note?
Wendy Sweet (13:59):
And that’s the thing too, that we even talked about in our leadership meeting this morning that we had is, you know, what is going to happen here? Because, you know, we’re being told that money is going to be released to tenants, and people who aren’t able to pay their mortgages when in reality, it should go to the landlord.
Bill Fairman (14:20):
Or the mortgage lender.
Bill Fairman (14:24):
Or the mortgage lender.
Jonathan Davis (14:24):
We were saying like, you know, you have money going to the tenants, to help with relief, but then you also couple that with a moratorium on evictions, well, what’s the incentive for the tenant,
Wendy Sweet (14:38):
Jonathan Davis (14:39):
To pay. And they know they can’t be evicted.
Wendy Sweet (14:41):
Right, right. There is no incentive, you know, thanks for the, you know, $6,000 you just sent me. I’m just gonna move next door and, you know, pay them their deposit and the next month’s rent and pocket the rest. And I think that’s gonna happen if we don’t really, if our state governments and the federal, of course, don’t put some sort of, guidelines out before they start throwing money in people’s pockets,
Bill Fairman (15:09):
They follow suit. Listen, I don’t mind people getting help if they were put out of work before this pandemic, because you, if the government tells you, you can’t work, then they should be the one paying.
Wendy Sweet (15:21):
But the money’s going to everybody, not to those who just aren’t working.
Bill Fairman (15:25):
And what they need to do is set up programs similar to the ones in after ’08 to where you would have to come into an office, they wouldn’t have to vet you and then if you qualified, then they would pay your mortgage payments for a certain period of time and in other words, like six months so you got back on your feet, and what happens with that money? For the most part, it’s a grant and it goes onto your mortgage as a lien and you have to keep that, you have to stay in that house another five years before it’s completely removed. And it pays itself down over time because they don’t want you to get that money and it turn around and sell the house.
Jonathan Davis (16:04):
So, what’s, the issue is, potentially the issue is, we get a lot of landlords who are owed a lot of back owed rent. They’re not paid it.
Wendy Sweet (16:15):
And therefore closed off.
Jonathan Davis (16:16):
Maybe they’ve been keeping current on their mortgage. Maybe they haven’t. And then, so if they haven’t been keeping current on their mortgage, they’ve put a lot of cash into this property without getting anything out of it. Well, does it make sense to throw a tenant in there after you’ve already lost a year’s worth of rent, or just sell the property,
Wendy Sweet (16:37):
And get your cash back.
Jonathan Davis (16:38):
And just get your cash back,
Wendy Sweet (16:40):
Good point, Jonathan.
Jonathan Davis (16:41):
So then we can have more inventory in the market in that manner. So that might be, I know that’s like a positive, negative kind of thing. It’s, you know, it sucks for the landlord, but it helps with the inventory supply.
Wendy Sweet (16:54):
That’s right. That’s right.
Bill Fairman (16:55):
If you’re an investor that has kept your powder dry, so to speak, now would be a good time to start marketing to the disgruntled landlords.
Jonathan Davis (17:09):
Bill Fairman (17:09):
Start sending out those mailers to, you know, smaller mom and pop homeowners and smaller multi-family properties.
Wendy Sweet (17:18):
Yeah. But understand, you’re inheriting someone who may or may not have paid, and has no intentional leaving
Bill Fairman (17:23):
Once again, you have dry powder and you’re going to be in a position to pick up properties at a discounted price, but you’ve just got to make sure that, I mean, you still have to honor the leases and at the same time, you have to honor the moratorium. But if you have a, you know, plenty of capital that you can afford to buy these properties and not get an income from it for a little while, it’s a good time to start doing those marketing and that marketing and get ahead of the game/
Jonathan Davis (17:54):
On the multifamily side. I mean, yeah. If you can do that with a property that needs very little upfitting, very little rehab. I mean, basically you’re playing a forced appreciation game where you can weather the storm of three to six or 12 months of low or no income stream, but then you can get that income stream and replace and actually raise rents because do think rents are going to lower? Probably not. And then you can get those interest rates,
Bill Fairman (18:25):
There’s still a housing.
Wendy Sweet (18:25):
Even section eight is paying more.
Jonathan Davis (18:27):
You bought a house or a multi-family at a discount. And now you’ve just doubled the value with the forced appreciation on the rinse that you’re collecting. It’s a good strategy if you can find the property, if you can find the mom and pops.
Wendy Sweet (18:45):
So we only have like, six minute left.
Jonathan Davis (18:46):
Okay, let me, I wanna, say this really quick.
Wendy Sweet (18:50):
This is good.
Bill Fairman (18:52):
We’re doing a webinar and participating in the cashflow expo. I think it’s the first week in February. I’m sure. There it is. Nope. Okay. 18th through the 20th. And there’s a link, if you want to click on and register for it. It’s a two day event. And I think last year, I was a little off with my numbers. It was like 2,500 people attended
Wendy Sweet (19:20):
Yeah. Not 25,000, but it’s still a whole bunch.
Bill Fairman (19:23):
Yeah. And there’s like 30 speakers. You get a lot out of.
Wendy Sweet (19:27):
And they’re awesome.
Bill Fairman (19:27):
And really for less than a hundred dollars, that’s pretty good investment.
Wendy Sweet (19:33):
Bill Fairman (19:34):
All right. So, Wendy, what’s our question? Oh, wait a minute. Here’s our ugly question.
Wendy Sweet (19:49):
Here’s our ugly question.
Bill Fairman (19:49):
Sorry. I forget we had these fancy graphics.,
Wendy Sweet (19:51):
That’s right. That’s right. So it says, this came actually to us on a Facebook from Barb Eckland. Uh, Oh, it’s already here. How wonderful is that? So, would, you know, the going price range for performing first position mortgages with equity and a good pay history? Really, she selling her her note and she really wants to know how much to sell it for and so that was a seriously loaded question. Certainly not a one trick answer because there’s so many variables that go along with that,
Bill Fairman (20:24):
And you have to know a little bit more details about the note itself.
Jonathan Davis (20:27):
About the note to give a really good advice, but basically it’s whatever the market is going to pay. What’s the interest rate? I mean, if you’re on a, you know, amortizing 5% interest rate, probably going to have to sell it at a discount for someone to get, you know, the expected returns that they want, especially if it’s several years old because you know,
Wendy Sweet (20:46):
Which is another good point. How long, how old is it and how long have they been paying it?
Jonathan Davis (20:50):
Is it an advertising is it interest only, you know, what does that, you know, is that, is it a balloon? What is it? What’s the asset type? Is it a single family home? Is it multifamily? Is it layer? Yeah. And where is it? In New York?
Wendy Sweet (21:04):
Whatever you can.
Jonathan Davis (21:07):
But I will say like, you know, in our market, typically selling an interest only loan that is performing or newly originated, it’s par or par plus. So I’ve seen them trading up to like, depending on the interest rate up to 102, 103 percent.
Bill Fairman (21:25):
And for those of you who don’t know what the hell we’re talking about,
Wendy Sweet (21:29):
Par’s not a golf term here.
Bill Fairman (21:29):
That means you’re getting whatever the note is worth. Plus 2% above that as a, so 2% of the loan amount would be your bonus, so to speak.
Wendy Sweet (21:42):
That’s what it’s worth.
Jonathan Davis (21:43):
So basically if you don’t, not dumb it down, but simplify it, if you have 12%, right note, it’s a year long and you pay 102% for it, you’re making 10% on that loan. That’s what you’re making. You pay the 2% premium to make sure that you got a loan that can now pay you 10% is what it’s down to.
Bill Fairman (22:06):
And if it’s a fully amortizing loan, and let’s say you’re charging a 7% interest rate, and you’re the person that wants to buy it from you and wants a 9% yield, depending on the loan amount, how do you fix that? Well, you charge them less money than the note is worth and then you raise their yield because the payment’s still the same, that doesn’t change. But when I’m paying for it, is less money.
Jonathan Davis (22:33):
And if anyone wants to know how to calculate that, please feel free to reach out to us. I can, I can share that with you, because basically we want to cap, you want to calculate is your cash on cash return and you, you know, what you pay for it, will determine your cash on cash return, which will determine what your interest rate is or what your yield is.
Wendy Sweet (22:54):
Bill Fairman (22:54):
Yeah. And I’ll tell you what any speed does some great classes on that kind of stuff. And if you do some of his education, he provides you with all the amortization,
Wendy Sweet (23:06):
Calculators and stuff.
Bill Fairman (23:06):
Schedules, the calculators and he’ll teach you to be able to just figure out numbers right away to see what works and how to do it. So, he’s a great resource
Wendy Sweet (23:20):
Well, another option too, is, you know, are you really interested in selling the whole note? Do you want to sell a portion of the note, the front part, the back part, the middle part, partial payments, you know, do you want a portion of the payments to come to you along with, the portion of the payments that you’re going to sell? So it’s, there’s so many different ways to skin that cat.
Jonathan Davis (23:41):
And just, you know, buyers, beware. If it’s an advertising loan and it’s several years into the loan, even though the loan is a hundred thousand dollars, someone says, Hey, just penny par for the a hundred thousand, do not do that. It’s an amortizing loan. Each payment pays down principal. So do not pay the face value of the note because you won’t make that back.
Bill Fairman (24:03):
Wendy Sweet (24:04):
That’s exactly right.
Bill Fairman (24:06):
So we’re going to have to wrap this up because we were long-winded in our bloviations
Wendy Sweet (24:14):
Love it mostly here but yes.
Bill Fairman (24:14):
That’s what I’m known for. I’m also known for being fashion forward. So pocket square is also a mask
Wendy Sweet (24:19):
Oh, he is up there.
Bill Fairman (24:23):
Okay. So we are Carolina Capital Management. Thank you so much for joining us today. If you’re a borrower in the Southeast and you are looking to borrow money in the Southeast, I go to CarolinaHardMoney.com and click on the apply now tab. If you’re an investor looking for passive returns, then click on the accredited investor tab. Don’t forget the share, like, subscribe, hit the bell, all that good stuff. Our next show is coming up.
Wendy Sweet (24:53):
And it’s really good!
Bill Fairman (24:55):
Yeah. We’re going to have,
Wendy Sweet (24:57):
Bill Fairman (24:58):
Jonathan Davis (24:58):
Bill Fairman (25:00):
Ronald. The Gran is joining us. What else do we have on there? Oh yeah. Don’t forget about the cashflow expo if you’re interested. And like I said, it’s a very inexpensive education for two days and you can also, with that ticket price by the recording. So if you can’t make it, that’s even better.
Wendy Sweet (25:21):
I actually have an Airbnb seminar coming up too, and I don’t have the number for it, so we’ll put it on the next show
Bill Fairman (25:26):
We’ll do it next time. Anyway, it was a pleasure. We’ll see you on the next show.
Wendy Sweet (25:30):
Jonathan Davis (25:45):
Like, are we?