Syndication Part 5: Susan's Modification...

unimpressed As we conclude our 5-part exploration of syndication today, we here at Mogul are struck by the impressive scope of insightful material that has been covered in this recent series.

First, Susan Lassiter-Lyons – aka. “The Madam of Money” – introduced the concept of syndication in a thorough exploration of Raising "Pooled" Capital for Real Estate. Susan has been a real estate investor since 1994, has raised $26.2 million in private money since 2004, and has participated in 600 real estate transactions – and in this seminal lesson she explained why she loves the private money “pool” so much. (Short Answer: It’s one heckuva cash cow!)

Then, in our follow-up to Susan’s introduction, we dug deeper into her business of choice by briefly examining The 11 Ways to Profit from "Pooling" Capital in your own syndicated note-buying fund. (See what I mean? Eleven ways! Even without using your own cash.)

Next, Susan walked you through her helpful step-by-step guide about How to Create and Manage a Note-Buying Fund. (It’s like Fund Creation for Dummies, but more concise – and entirely online.)

And most recently, building upon the solid foundation laid in these previous lessons, Susan explained exactly How to Market Your Own Note Buying Fund.

In today’s final lesson, Susan brings it home by describing the actual investing side of a fund management business – including her unique strategy for “Modification Millions”…

Position Your Investors’ Money for Deployment

Once you recruited the investors for your note-buying fund, the first thing you must do in the actual investment process is to “position” your investors’ money for “deployment”. That's just a fancy way of saying that your investors’ funds are originally located in someone else’s possession, and you must assist with transferring their money into your fund.

Most of your investors’ money will probably come from 401k's, IRA's, cashing-out CD's and/or home equity loans – and it will require some time to position their money for deployment into your fund from each of these original sources.

In general, it takes approximately 45 days for most investors to get their money from its original location(s) into your note-buying fund syndicate, regardless of where they are pulling their money from.

Close on the Notes, Then Mix Things Up a Bit

Once your investors’ funds have arrived in your possession, you will need to close on the notes you wish to purchase.

At this time, ordinary syndicators would commence foreclosure proceedings on the related properties and/or flip some of the notes…

…but I [Susan] am no ordinary syndicator, because I prefer to focus on loan modifications. In fact, you could say that loan modifications are my “secret sauce!”

I once tried to nickname this approach as “The Science-of-Susan Super Savvy Strategy for 2013 & Beyond”, but it just couldn’t seem to catch on, ya know?

-smile-

So now I prefer to simply call this my personal “Modification Millions” strategy. And I’m going to conclude this series for Real Estate Mogul by showing you (i) exactly what “Modification Millions” is all about and (ii) how you can manage and grow your note-buying fund using these same tactics.

(And yes, to be clear, most other investors are not doing this stuff…yet.)

Susan’s “Modification Millions” Strategy

Here’s how it works:

Step #1: Contact Portfolio Lenders – First you want to contact various portfolio lenders, in order to get a list of all their nonperforming, not foreclosed notes. These are the notes that you want to purchase in your fund. Specifically, you will want notes that are late by 30 days, 60 days, 90 days, 120 days and 180 days. And you will only be interested in instances where the owners are still living in the home (ie. “owner occupied”).

Step #2: Get the Notes – Offer a 50% discount from whatever balance is owed on the loan (ie. “principal balance”).

Step #3: Reduce Their Principal Balance – Contact the owners and let them know that it's their “lucky day”, because there is “a new bank in town” – you! Although some owners might faint when they hear it, inform them that first thing that you're going to do is reduce their principal balance by 25%. (If they owe $100,000 on their loan, you're going to reduce it by 25% and say, "Look, now you only owe $75,000 on this loan.")

Step #4: Forgive All Past-Due Payments –The next thing you're going to do is forgive all the owners’ past-due payments – all those payments that they haven't been making, that have all accrued. Explain to the disbelieving owners, “Yes, I’m going to forgive all of your past-due payments. No, don't worry about it – that's the old bank. I want both of us to begin this new relationship with clean slates. You don't owe me any of the back payments.”

Step #5: Reduce the Interest Rate – Finally, reduce the interest rate. Reduce whatever interest rate owners are currently facing, unless it's already super low to begin with (which is unlikely). Typically, you will find that these people are initially paying a relatively high interest rate.

Step #6: Service the Note – Make arrangements with your note servicer to begin collecting the payments, because I guarantee you that these people are going to start paying. After all, they just hit the lottery…

The owners get to stay in their house. You slashed 25% off what they owe you, so now they're not upside down anymore. You reduced their interest rate, and you forgave all the past due fees and mortgage payments. So once they start paying – and they will – all you must do is collect payments from your note servicer…

…and watch your equity grow!