Feb 17 • Due Diligence 🔍
Hidden Costs of NPN 2nds
This year's Cash Flow Expo introduced me to many knowledgeable investors in the note space--one them being DJ Olojo. His lecture titled "The Good, the Bad, and the Ugly of Second Position Notes: Risky on Paper, Powerful in Practice" included a case study on one of his successful note purchases in which a "small" $2,565 note with a $14,442 UPB on a $69,000 property wound up costing him $19,981.29.
As a novice looking to start in this space, the true "cost" of investment had me thinking:
1) Which fees play a major role in making "small" junior liens not so small and, if so, are there ways to eliminate this cost?
2) Is there a way to factor in outsized costs when calculating return assumptions prior to bidding?
3) Should reports of some investors earning 3-10 times their original investment with junior notes be viewed as outliers?
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Hidden Costs of NPN 2nds
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