Deal of the Week
Finding the Red Flags!
At 7e, we pride ourselves not only on the successful deals we close but also on the prudent decisions we make to safeguard your interests as an investor. This week, we’d like to share a story about a potential investment we chose to walk away from—highlighting our commitment to maintaining a strong risk/return profile.
Investment Overview:
- Loan Type: Non-Performing Loan
- Bid Price: $120,000
- Borrower Amount Owed: $198,000
- Property Taxes Due: $12,000
Due Diligence Findings: During our thorough due diligence process, we discovered several red flags:
Non-Owner Occupied: The property was not owner-occupied, which often correlates with a higher risk of property degradation
Delinquent Property Taxes: The property taxes were $12,000 behind, a significant sum. Standard practice in this space is to reduce the acquisition price by delinquent taxes, but in this case, the seller would not deduct from the sales price. This would effectively increase our costs by $12,000.
Discount Analysis: After factoring in the delinquent taxes, the effective discount on what the borrower owed to 33%, which did not meet our target for a favorable risk/return profile.
Foreclosure Status: The foreclosure process was in its early stages, indicating a potentially lengthy and uncertain resolution period.
Strategic Decision: Given these findings, our team determined that the risk/return profile of this deal did not align with our investment criteria. The combination of the high acquisition price, significant delinquent taxes, and early foreclosure status presented too many uncertainties and potential risks for you, as one of our valued investors.
Why This Matters: We believe that saying “no” to the wrong deals is just as important as saying “yes” to the right ones. By walking away from this investment, we protected our portfolio and your investment, from unnecessary risk and ensured that we continue to pursue opportunities that offer the most favorable returns with manageable risk.
We are dedicated to making informed, strategic decisions that prioritize the long-term success and stability of your investments. If you have any questions about our investment strategies or would like to learn more about your investment, please feel free to reach out!
