Deal Breakdown: A Defaulted $68K Note Bought for $34K, Reworked Into a ~19% Cash Yield

You see a $34,000 price tag on a mortgage with a $68,000 balance and think, "that can't be right." It is. And that discount is the whole game.

This is a past deal we did with a partner. The numbers are rounded for privacy, but the structure and the math are exactly how it went. No magic, no 300 percent fantasy returns. Just discount, workout, and yield.

The Deal at a Glance

A non-performing first-position note on a modest home in the Atlanta metro.

Translation: the home is worth about $85,000. The borrower owes $68,000. We bought the loan for $34,000, half of what is owed. That discount is our margin of safety. Even in a worst case, the property secures far more than we put in.

Why We Bought It

Two reasons. First, the discount. At 50 cents on the dollar we had a wide cushion, so we did not need a fast foreclosure to make the deal work. Second, the equity. With $17,000 of value above the loan, the borrower had a real reason to keep the house, which made a modification realistic. Equity plus a discount equals options, and options are what turn a defaulted loan into a paying asset.

The Strategy: Modify, Don't Foreclose

We had two paths:

• Foreclosure: file, wait 6 to 9 months, spend real money on legal fees, then sell the house. Slow and expensive.
• Modification: find the borrower, restart payments on terms they can afford, and hold the note for cash flow. Faster and cheaper when equity exists.

We chose modification. Here is how it went:

Months 1–2: Find the Borrower

• Servicing boarded to our servicer; title pulled and confirmed clean.
• Phone was disconnected and mail came back, so we ran a skip trace and found the borrower had moved.
• First call: the borrower was surprised to hear from anyone and wanted to keep the home.

Month 3: Modify

• We capitalized the roughly $4,000 of arrears into the loan, resetting the balance to $72,000.
• New terms: 8.5 percent, re-amortized over 25 years, for a payment of about $580 a month.
• Borrower signed. An attorney reviewed and finalized the modification.

Months 4–6: Reperform

• Three modified payments came in on time, $580 each.
• The note is now reperforming and generating monthly cash flow.

No drama, no foreclosure, no vacant house to babysit. A skip trace, a phone call, and a payment plan the borrower could actually keep.

Every Cost, Nothing Hidden

Acquisition

Servicing (6 months) and Workout

All-In Cost

The Return: Honest Math

The value here is not a quick flip. It is yield. Once the note reperforms, it pays $580 a month, which is $6,960 a year.

That is roughly a 19 percent cash-on-cash yield on the money we put in, and about 17 percent counting interest alone. In the first six months we collected three payments, or about $1,740, because payments started after the modification finalized in month three. From here it pays every month.

And that yield ignores the discount. We paid $34,000 for a note with a $72,000 balance behind $85,000 of property. As a reperforming loan it is worth well more than we paid, so there is real equity on top of the cash flow. We do not count that as return until it is realized, but it is there.

A thin deal needs everything to go right. This one only needed the collateral to exist and a borrower who wanted to stay. The discount did the rest.

What This Deal Teaches

1. The discount is the protection. Buying at 50 cents on the dollar meant the property secured twice what we paid. A low loan-to-value plus a deep discount is the whole margin of safety.
2. Modification beats foreclosure when equity exists. A few hundred dollars on a skip trace and an attorney turned a defaulted loan into monthly income, without the cost and delay of foreclosure.
3. Yield is the quiet winner. Nobody tweets about a 19 percent cash yield, but it compounds for years without a tenant or a toilet.
4. Small deals are real deals. You do not need six figures. This was a $36,000 all-in position, and there are thousands like it.

That is note investing without the hype. Buy the debt at a discount, work it out fairly, and let it pay you. Be the bank.

This breakdown reflects a past deal we did with a partner, with the figures rounded for privacy. It is not investment, tax, or legal advice, and not an offer of any security or a promise of returns. Note investing carries risk, including loss of principal. Every deal is different. Do your own due diligence and talk to your own professionals.

AJ Dent is the founder of Take Notes Capital, a mortgage note investing firm specializing in non-performing notes. Book a free strategy call.