In this episode, we welcome back Lorraine Millington as she discusses the benefits of purchasing non-performing loans and doing due diligence before purchasing those notes. Lorraine shares her experience in a recent loan where she and her joint venture partner was able to get a high roi on the note. She also talks about building business with brokers, mentors, and the bank and the importance of having knowledge of the basics of notes.
[00:01 – 05:29] Benefits of Purchasing Non-Performing Loans
- Check out part 1 of the interview with Lorraine!
- Non-performing loans are secured by a hard asset
- There is a potential to pick up properties under market value
- Doing due diligence to make sure the value of the asset supports the debt being purchased
[05:30 – 11:06] Experiences in Passive Paper Investing
- Did a joint venture with a client who wanted to start in note investing
- After doing a close on the loan found out the initial borrower was still making payments
- Discovering that the ROI on the loan is continuing to increase
- Importance of always asking the seller for information
[11:06- 16:05] Where to Purchase Notes
- Look for brokers, mentors, or coaches who have great relationships with banks
- Banks are looking for purchasers who can solve the problem of getting that asset of their books
- Make sure you have an accredited investor and enough money in the bank
- Importance of having knowledge of what notes are and JV partners
[17:30- 26:09] Closing Segment
- The final questions
- Diversification as being a protection against ignorance is that we can’t believe that one stream, one strategy is going to blow it up for us. We have to make sure that we have our eggs in different baskets
- Lorraine shares his strategy in choosing between Baltic Avenue and Boardwalk
- What’s next for Lorraine?
- Connect with Lorraine!
“A non-performing loan can definitely be an option for you. But then also, if someone is looking for passive income opportunities, and maybe the stock market is a little bit too volatile for you, maybe the cryptocurrency market is, is a little too volatile for you. Cuz those are two of my better examples of a more passive paper income type of strategy.” – Lorraine Millington
“The debt is still the debt, and you know, we’re, we’re not necessarily going to adjust that or modify that.” – Lorraine Millington
Connect with Lorraine Millington through
Follow her on LinkedIn https://www.linkedin.com/in/lorrainem… and
subscribe to their Youtube channel / @melaninhomes
Contact her at +1 440-305-5195
Let’s get connected!
[00: 00: 00 – 00: 00: 14]
This is what we are doing in our due diligence. We’re making sure that the value of that asset supports the debt that we’re purchasing. So even if the market corrects itself and home values go down a little bit, it’s not going to go down to the point where you’re going to be upside down on this loan. Right? And to your point, the debt is still the debt. And you know, we’re not necessarily going to adjust that or modify that.
[00: 00: 15 – 00: 00: 53]
Welcome to the Share the Wealth Show, where minority professionals can learn to escape the racial wealth gap and catapult themselves into abundance. Your host, Nicole Tendergrass, who her network from being negative to multiple six figures. Join her on her investigative mission to expose secret strategies of the wealthy. So we can all have the tools needed to build the life and legacy we were created to possess. Now it’s time for the show.
[00: 00: 54 – 00: 01: 23]
Hey guys, so we’re back again. This is the second part of the episode with today’s guest. I need you if you have not heard part one. Go back to the previous episode and listen to that first and then come back and join us here today. But you’re not going to want to miss what they already said because then you’ll be lost with what they’re about to say. But in any case, you don’t want to miss the whole. You need to hear the whole conversation. It’s why we split into two parts. There’s so many nuggets. It’s so juicy. Go back and listen to the first part.
[00: 01: 24 – 00: 02: 41]
Your next question was what some of the benefits be of purchasing a non performing loan. And it’s and it’s really that, especially if you’re in the physical property stage of a real estate. And you may be you’re having some challenges with picking up distress properties or being able to get inventory at all. A non-performing loan can definitely be an option for you. But then also if someone is looking for passives income opportunities and maybe the stock market a little bit too volatile for you. Maybe the cryptocurrency market is a little too volatile for you because those are to my better examples of a more passive paper income type of strategy. But this is actually secured by a hard asset. So if either you’re looking for an opportunity to pick up properties potentially pick up properties under market value or even just looking for a way to protect your investments so that it’s still a passive opportunity. But you’re not you’re not constantly checking the stock market. The scenes with things will up and down and we’re using full and not even having any security for that asset. Then I would say that those are some of the top benefits for non-performing loans.
[00: 02: 42 – 00: 03: 17]
Yeah, and then even with performing if you want to be passive you don’t want to deal with you know the non performing or the or going through for closure or any of that. Even with that because even if house values go down the payment on the loan is the same that the same deal always even if they have less equity they still owe that payment. Yep, right, so that and at the end of the day even if it goes down temporarily real estate generally is going to go up over time. So regardless by the time your loan is paid off you will have somewhere you know equity and you still have the payments and stuff there too.
[00: 03: 18 – 00: 05: 27]
And even with performing loans this is what we are doing in our due diligence we’re making sure that the value of that asset supports the debt that we’re purchasing. So even if the market corrected self and home values go down a little bit it’s not going to go down to the point where you’re going to be upside down on this loan right until you point the debt is still the debt and you know we’re not necessarily going to adjust that or modify that and the median certain situations. But you’re still secure by the value of that property so exactly what you’re saying you’re still compounding and you’re still making a profit and in my opinion. So the 401k of self-directed IRA because that’s already a set it and forget it type of strategy where you technically can’t even touch that money. So if I’m now investing in assets within a self-directed IRA of solo 401k and all of the profits are now going back into that account. And this is more of a tax play but depending on how bad account is set up whether it’s a rock 401k or even a rock IRA all the money that’s going back into there is going to be tax deferred until you’re ready to take that money out. If it’s set up, it’s not necessarily tax advice but just some insight and if that account is set up for at least five years if it’s an IRA then sometimes that money can even be tax free when you’re ready to withdraw from it. There’s a lot of strategy and just going into sharing the wealth and how we really not only obtain wealth but actually keep it and grow it that’s another strategy and another option as well. Performing loans and compounding your profits and interest great opportunity and even non-performing loans and being able to either pick up properties where at least purchase debt way below market values just in these all of this would just line boggling me like okay why hasn’t this. I mean shared with more of our community because this is really a wealth play like this is really how you compound.
[00: 05: 28 – 00: 06: 03]
Wow okay you know we’re running close to the end but I have questions. Okay. So all right one thing that came to my mind and really quickly in your experience either with you or if you’ve helped other people getting into this type of strategy what’s an example of like. A really killer deal that somebody did like you they got in for a lower amount got a huge ROI or just what did that was like a great example of like a deal that just stands out to you.
[00: 06: 04 – 00: 07: 24]
Sure so I do have a couple but I’ll share one from a deal that I’m actually still involved and so I do work with investors who are looking to get started and know investing and don’t necessarily know where to start what to do with the know once you purchased it all of these things. So I do join venture with investors who are looking to get started and don’t necessarily either want or know how to do it on their own. Okay so this particular deal that I’m going to be talking about is with one of my JV partners where we were analyzing a note and we were analyzing this note it for all intensive purposes look like a non performing loan on paper right like I mean we’re looking at the tape. I’m doing all the due diligence where everything is looking as though especially the information from the seller all of it was looking non performing.
[00: 07: 25 – 00: 07: 44]
So we went into it with the idea that okay we’re going to purchase this loan we understand that it’s not performing with the borrower isn’t making their payment so we’ll have certain areas of recourse once we close on the note. However, even though all the information was looking as though was non performing they were certain indications to me based on the information that we received that it was actually more of a performing loan than non performing. Long story short once we close on the loan we got a boarded with the servicer all of these things it turns out that the seller me excuse me that the barbers had actually been making their payments. So the whole time it was just a lack of record keeping or better record keeping on the on the part on the seller.
[00: 07: 45 – 00: 08: 42]
So how this was good or how this was like a kind of hit out of the park is because since I was aware that it was probably more performing than non performing instead of bringing this to the seller’s attention. We generally generating them wanting more for this note we actually paid less or we paid more towards the close closer to the non performing price of this loan then after it closed and we went through all of the process to get it on boarded. We recognized that they were paying so initially we paid much less for our loan that was actually performing that mean would have so that’s you know that’s I guess star or check number one. And they’re actually continuing to pay and they’ve been paying ahead of time more so than they were doing before so the return on investment is actually continuing to increase I can’t even give you what those full numbers are because we’re still into we’re still in the deal of rest on the investment.
[00: 08: 43 – 00: 09: 10]
So what really stuck out so much to me is having the understanding to know when to go back to the seller and accident information but then also having the ability to recognize that okay we can actually get a way better deal on this asset than more than maybe we initially realize because of the information that we know so that is to be continued but we’re still you’re still making money off of that and again we got it for a really good initial price so.
[00: 09: 11 – 00: 10: 46]
And that’s crazy that you would own a no and not have good record keep I mean guess it’s not too crazy. I mean everything with people is all over the place but you’re not keeping good records so what if he has started a foreclosure process assuming that these people had not been paying when they haven’t been. They got to go through all the processes and spend extra money now they have to prove that they’ve been paying you know and so and that’s so that’s all part of the diligence right and what we’re doing on the research on the asset before even closing. So I would have known if foreclosure proceedings would have started but even still sellers which are going to be either banks credit unions hedge funds all of these all of the above. They’re in the process of lending money they’re not necessarily in the data entry or the management process right if anything they’re not going to go forward with the process of foreclosure which is going to cost them more money. And it doesn’t necessarily benefit them in the in the interim which is why we step in and why we have the ability to negotiate some of these things even further especially if you have knowledge about what it is that you’re looking at and what you’re looking to a complex so knowledge I think as I think I shared in the in the beginning is super important in this industry and if not knowledge partnering with someone who has the knowledge and who has the experience to be able to do something like that. So it’s not it’s not uncommon to come across these different situations or these different instances you just have to know what you’re looking for.
[00: 10: 47 – 00: 12: 34]
Yeah and I’m all about partnering mentorship getting together with communities and getting that information so that you know what you’re doing and not just jumping into stuff I’m all about that and is this all about what is possible out there and people understanding and knowing that this is actually an avenue. Yes. Where do people even look for a note if you’re looking for a note and purchases they’re like you know there’s the MLS for properties. Yeah, we’re not listing that so a lot of the note business is a relationship business so it would it would really serve you well again to either have a broker have a mentor have a coach that it has already built the relationships with the banks and the reason why say that is because. The banks are looking for mutually beneficial relationships right so unless you’re coming to them with a way to solve their problem and one of their problems is getting assets off of their books either assets that are making the money are not making the money because at the end of the day even at the asset is making the money. And we built in most of their profits on the front end even them selling this asset you know they’re going to go out and lend we lend that money out at a higher interest rate most of the time anyway. Unless you as an individual can come in and present a present a solution to their problem which is either again purchasing their inventory or having enough capital or buyers in your circle or in your network to be able to purchase this inventory. And you’re not necessarily solving their problem and so if you don’t want to make those relationships make those relationships with the broker or the mentor or the coach at your working with who’s already established those relationships that’s one avenue.
[00: 12: 35 – 00: 13: 03]
There are their online marketplaces that you can use to whether it’s a bigger pockets or a paper stack or notes director some of these online marketplaces that offer the ability to purchase notes. Again knowing what you’re doing knowing what you’re looking for and having in mind that some of sometimes. And maybe these platforms have to make a spread or a profit as well so sometimes that profit is going to be built into some of these marketplaces.
[00: 13: 04 – 00: 14: 07]
Third option is also going after some of the more private mortgages so you’re obviously in the multifamily industry so one example that I’ll give is you have a building right you own this building or at least you have control over this building if you own that building free and clear you can sell that you can sell that property to another individual through cell of financing and create a note on that asset. And if you do that there are plenty of people the mom and tops if you will let her out here doing that you can purchase or you can reach out to those private mortgages and be able to purchase those notes as well so there are definitely other options out there and so it really just depends on the amount of time that you have and also sometimes the amount of capital because if you’re going to rent a banks make sure you know you’re accredited investor and you have money in the bank so that you can actually of a benefit to them but if not than some of the other options would probably be a bit more attainable to be able to get started .
[00: 14: 08 – 00: 14: 56]
I don’t want to cut you off but I have one more question, and we gotta go. If somebody is interested in this, right? Yes. They don’t even wanna do any of this. Like they wanna be completely passive. Like they don’t wanna do the upfront work and research and all this stuff. They don’t know generally how to drive the car, but they don’t wanna open up and get into the engine and all of that. And I know it multifamily me there are syndications where you can invest as a limited partner and syndication is almost like a fund like funds a little bit different, but it’s a group investment. And somebody who’s knowledgeable runs the investment. Do you know of anything like that? What if someone just wants to get established relationship with you, not all these brokers and all those other stuff? Do you have like a fund or something where you’re collecting money, you’re buying those in your managing that portfolio?
[00: 14: 57 – 00: 16: 02]
So this, I’m gonna keep this short, but this could be a little when it ends and because one thing that we don’t want to get involved with is the SEC. Those are three letters, and we’ll part of the three letters that we don’t wanna, we don’t wanna have any issues with those folks. And so, I mean, start talking about managing money, portfolios, funds, and all of those things, a lot of other factors come into place. So what I’ll say really quick is this. I do work with people one-on-one whether you want to learn while you’re earning and getting more of a hands-on aspect or if you just wanna have a baseline understanding of what notes are, but then you also don’t wanna have to know everything in order to get started either way. I think a JV partnership can work in that capacity. Now, yes, I’ll leave it at that. You can book out. Could you be to funds and all of those things that there’s some on their qualifications, sometimes to be able to invest in a fund, but you can have a JV partnership work either way if you wanna be really hands-off or if you kind of wanna be hands-on off. That makes sense.
[00: 16: 03 – 00: 16: 16]
Yeah, yeah, yeah, yeah. Okay, so any case people, you’re interested, you gotta reach out to Lorraine and talk to her just have a conversation and see where it goes. Maybe it ends up as not for you, but you don’t know until you actually reach out and have a conversation, right?
[00: 16: 17 – 00: 17: 24]
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[00: 17: 25 – 00: 18: 11]
So our final three questions. First, Warren Buffett has said that diversification is protection against ignorance. What do you think about that statement? What does it mean to you? Is he right or wrong? What’s that on about? Warren Buffett says a lot of great things. And what I interpret from this is that we can put all of our eggs in one basket. And so diversification as being a protection against ignorance is we can’t believe that one string, one strategy is going to blow it up for us. We have to make sure that we have our eggs in different baskets. And yes, maybe one will take off quicker than the others, but at least we’re not looting our shirt by going all in with just one strategy. So that’s what it means to me. Or at least that’s my interpretation of it.
[00: 18: 12 – 00: 19: 10]
Okay, great. And then monopoly. Have you ever played monopoly before? I have. I’m waiting for somebody to say no. No one said no.(laughing)No page kids probably was saying, no, I’m like, No, I’m not. Or some other version of monopoly, but that’s not how we do it. In any case. So between Baltic, which is one of the cheapest properties and boardwalk, which is the most expensive, and your strategy to win or your strategy for life or investing, which one are you buying first and why? I’m probably, this is a really good question, but I’ll probably buy Baltic first, although it is cheaper. In my experience, people land on it more. So I have the ability to make more money, even though it costs me less than the off-chairs that somebody lands on boardwalk. And maybe by the time they get there, they can’t afford the rent or whatever it is, what I’m just throwing them in jail, I’m still not making any money. Yes, so I’m wrong. I would say Baltic, it’s probably one of my first.
[00: 19: 11 – 00: 20: 51]
Great, great. And then also in your plan, all the things that you’re doing, very inspirational, I feel like this just can’t be it. You have to have something else. What else is in the future for Lorraine Millington? And what are you planning to do? And what resource do you need to really take yourself in your business to the next level? So there, I have a lot of goals in my timeline if you will have things I want to accomplish just with all of the businesses. But a lot of it, and this is gonna be, I guess kind of cliché, but it’s really freedom. And so again, when we’re thinking about, financial freedom and all this, it’s really time freedom, the ability to do whatever it is I wanna do whenever I want to do it, but still have my businesses running without me there. So I would say that that’s really what I’m working towards just in all aspects of what it is that I’m doing. And for me, in order to be able to get there, what I think is super important is it is coaching. Regardless of what level we get to or what stage that we’re on, we’re always, at least me, always should have a mentor or a coach. Because there’s always someone that is ahead of where you’re trying to go. And if there isn’t somewhere where are how do you try to go, then maybe we need to expand our circle. A little bit, it’s only the sub one who has done whatever it is that you’re trying to door whatever you’re thinking about doing. And those, that’s the rule that you need to be. Because the only way we’re gonna continue to grow and elevate ourselves is if we’re constantly being surrounded by people who are doing or going where we want to go.
[00: 20: 52 – 00: 22: 16]
So I would, yeah, okay, perfect. I love it. How can people reach out to you? I know we’ll have your, your links, social media and all that in the show notes, but what’s the best way for people to reach out to you? One, if they wanna learn more, if they wanna talk, they have a conversation with you, get interested or just check you out some more.
Absolutely, so my company is melanin homes. And I certainly welcome anyone who’s listening to go to my website, melaninhomes.com. I do offer a free consultation to speak with me directly. So we can see, and we can talk about notes, they can see if it applies to your situation or what your goals and your objectives are. In relation to investing to see if notes fit. So I definitely welcome you to do that. If it’s maybe you’re not necessarily sure what it is you wanna ask or what you wanna talk about, you can certainly send me an email, Lorraine@melaninhomes.com and I’m sure all this stuff will be in the comments. And then lastly, for some folks who are newer to mortgage note investing, I share a lot of free information, either on my YouTube channel, which is also under melanin homes. And I offer free webinar monthly where I go more in depth relating to note investing. So all of those options in the social media handles, all of that provides a lot of free information relating to notes or you can schedule a consultation, free consultation.
[00: 22: 17 – 00: 23: 00]
Perfect, perfect. Thank you so much. Like that is a lot of information that people, a lot of resources people can dig into. If this is something that you’re interested in, we’re all about trying to explore other opportunities and other avenues because maybe multifamily investing is not for everyone. You know, maybe stock investing, people have been burned. They want something different, but I still like paper, but it’s secure by actual heart as that I love that. So thank you so much for joining us today. Good afternoon. Great, this is fantastic. So much information. People please reach out to her, please check out her social media handles or YouTube, her website and get the information. Come on, you seeped all the wealth today. We gotta get it.
[00: 23: 01 – 00: 23: 27]
Yes, I appreciate this so much. And I love what you’re doing within the multifamily space. And for those that are listening, you don’t have to pick one of the other. You can certainly expand your portfolio and include both to really share your wealth and build your portfolio. Perfect, thank you and good night, everyone. Night depends on when you’re listening to this, but we’ll see you in the next episode. That’ll be good. – That’ll be good. Bye.
[00: 23: 28 – 00: 23: 52]
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