Creating Bank-Quality Seller Finance Notes | Real Estate Notes Show

Episode: JKP's 2023 Best 5 Discussions on Creative Financing & Note Investing Dave's Goals and Plans: - Pivoting from bank-originated notes to seller finance notes in 2023 - Connecting note originators with note buyers to bridge a gap in the market - Learning how to create legitimate bank-quality notes for their own purchasing - Building connections through Nick's Facebook group to connect originators and buyers Nathan's Goals and Plans: - Noting that the note investing business allows for easy pivots between different strategies - Explaining that they've focused on bank-originated clean paper for 12+ years - Highlighting the massive $30 billion seller-financed note origination market opportunity - Recognizing that note buyers and originators lack good connection in the marketplace Key Recommendations: - Structure notes from the end backwards - structure as if you will sell the note even if you don't plan to - Understand what the market will bear for your notes before creating them - Create bank-quality paper with proper documentation and compliance to maximize value - Ensure notes are underwritten correctly with everything stacked properly for secondary market sale - Understand your risk propensity and what constitutes a solid return before investing Topics Discussed: - Note origination and seller financing strategies - Bridging the gap between note originators and professional note buyers - Bank-quality note structuring and underwriting best practices - The $30 billion seller-financed note market opportunity - Dodd-Frank regulations and RMLO requirements for note creation - Secondary market standards for note sale and refinancing Guest Insights: - Less than 5% of the $30 billion seller-financed market originators do more than 4 notes per year - highly fragmented industry - Most note creators don't structure notes at bank-quality levels, missing key elements for secondary market sales - Sold a 100+ year old bank a seller-financing business with hundreds of notes written, demonstrating bank-quality paper value - Banks and institutional buyers (Fortune 500, hedge funds, private equity) pay premiums for bank-quality notes because they focus on asset preservation and cash flow - Professional institutional buyers don't want to manage problem assets - they want clean, properly structured paper what it does Max approved it he says listen the borrower can pay it I'm not so concerned now do I look at it I will look at it if they put a dollar down or th000 down 300,000 I'm gonna say whoa what happened here right but it doesn't mean as much so the down payment really doesn't apply to me too too much because the not math doesn't include that so I see Drew put that he's running a 9 and a half% note uh with 10% down and 30% am I'm going to tell you now that 9 and a half% no is too cheap yes right Max I know you're in the background what do you what's the kind of average from call the underwriter he run writes um loans throughout the country what is the average rate notes are being created at now the you bet yeah you bet um well you you'll probably be happy to hear this but they they haven't in the last two years they haven't escalated at the rate of inflation when when the APO was 2.89 a couple years ago we still had good note creators putting nine and a half and 10% interest on their notes so the the spread obviously was very good all I was writing probably eight out of 10 of the notes we were creating were hcms high cost mortgage loans meaning the definition being that that is a uh a rate that is 6 and a half% above the APO or the street rate of the day probably eight out of 10 files were now one in 20 files are an HCM loan because in order to keep that same spread when the APO now is 6.5 you'd need to be in excess north of 12 a half% sent on everyone no arguing that notes are not getting as good of a spread now as they were two years ago period there's no getting around that yeah so max you again on housing policy some stuff going on in Ohio that we've managed to Throttle Down I mean National Ria does more PE does more for people than they realize um on this kind of stuff but uh last week my good friend Congressman Andy Bar out of Kentucky released a bill um it's another version of the bill we've been working on for years viente Gonzalez Henry qu also friends of mine Democrats out of Texas and William posy Republican out of Florida immediately jumped on his co-sponsors it's HR 3464 HR 3464 it will go into Frank and truth and lending and the safe act all three of those obnoxious bills and find that ridicul ully low number of three in a 12-month grade of time and turn the knob from three to 24 yes oh now when is that happening so those who listening right now and I I hate to interrupt most of you guys don't know anything about the three you guys are probably originated 15 loans without using any kind of Licensing and ralo and going what do you mean I can't do that Jeff said again into why we can't do that but what Jeff's saying now is the rule has been three in 12 months he's now turned up that volume to be able to do 24 but however if you are treating notes more than three a year you're violating federal law so the volume's being turned up yeah so we're g we're gonna get that now this we this is a bill that we have been pushing since 2015 in various forms Congressman Roger Willams Republican out of Texas was the first one to get on board so we've seen it um when the Obama Administration was in controls when we started on this throughout the entire Trump Administration we were so close at one point in time during the Trump administration of getting this bill to move out of the house out of committee they've already done it so okay so let's let's talk about where we are and what to do Dodd Frank is part of the massive Financial regulatory stuff shoved down the throats of regional Banks small Banks private Capital holders all for the benefit of the large too big to fill Banks it was shoved down our throats as a result of the housing meltdown and financial crisis of 7 through 12 um it was a Sac it's a sacran pie piece of legislation in the eyes of the Democrats um because it was enacted during the Obama administration and it is it has been a terrible destroyer of private Capital now what we want to do is we want to take the restrictions in Dodd Frank and we want to lift the volume restriction without changing any of the consumer protections and I want to be very clear about this if you are a predator a financial predator where you do what I call Yoyo loans on yo-yo houses put it out there knowing you're going to get it back put it out there knowing you're going to get it back and in the meantime you're just grabbing people's down payments and deposits and so on and you're just basically stealing from them I have a I have a simple request of you get out quit beat it okay I just they that is what gives our industry such bad name yeah instead I want you to focus on doing quality deals and let me El let me let's just get into some of the elements of a quality deal and you guys direct me where we need to go yeah okay um you need to and this is some of the bantering and feedback I took back from cfpb where they were pushing hard and I pushed back hard and so on when you're well I think on the origination side I I I think they really need to understand you need to work you need to work it from the from the end backwards okay so uh even if you don't intend uh to sell a note you probably need to structure it and look at it as if in the event that you do okay this is on the creating side right so you want to make sure you do it so you don't have to go have a fire sale and end up having to scratch a check to get out of the deal that's number one so you want to know like what would somebody you know what would an the indicative bid be on the note if it's created this way and and it's underwritten from the RM and everything stacked correctly you need to know what the market will bear if you're going to create that's my opinion okay on the Note buying side you know it gets back to you know what's your propensity for risk okay because everybody has a different different definition of risk and and some people a lot of people have a different opinion on what a solid return is [Music] okay hey everyone Dave puts here from jkp Holdings alongside me as always Mr Nathan Turner hello hello hello it's been a crazy uh time uh New Year has approached us and we're starting off 2023 in a little bit different way I think uh a lot of our angles have changed um after the last month or so we've been talking to a lot of different investors different people inside the space um because we've been used to bankr notes yeah it's it's again one of the cool things about this business is it's pretty easy to Pivot uh you can go from one thing to the next there's so many different ways you can tackle notes uh that it allows you to kind of change directions fairly quickly and uh and there are so many different directions you can go that it just gives you all kinds of opportunities all kinds of options it's great so you know we got into this space years ago and what we look for was the opportunity to just invest and make money on our money um I spoke at a ria last night about you know landlording and you know the struggles with that and how this is similar to landlording with the idea of passive income and fix and flipping and renting and stuff like that and one thing we focused on in our 12 plus years doing this is been Bank originated clean nice paper um and running on numbers and I'm not sure how long ago we did a video with Tracy and we found how large this other world is um of note investing or actually creating notes yeah yeah and it's funny you know because when I started notes my my the beginning of my no career was creating notes back in Columbus Ohio and it was I actually really liked doing it uh I I stopped for a while because it was in 2012 and Dodd Frank came into play and I couldn't find an rmlo and so and I knew that that was a thing and I knew that that was something that needed to happen but I couldn't find one so put that on pause uh which was totally fine like we say you can pivot pretty easily yeah but now we're kind of finding our way back that direction and getting back into that seller finance world yeah absolutely and the fact that when we hear this 30 billion originated it's nuts yeah um GL was jumping in here billion like nuts million billion dollars of seller finance origin in one year yeah yeah so that's huge that the opportunity there is massive yeah yeah you know when we talk about this stuff we're all about numbers and whatnot and what we're finding out you know is that this world of St Finance doesn't have a good connection to the world of note buyers and what we're realizing is that could we basically do this in a way that it we can Bridge a gap basically fund them out and get let them keep going and they're cop do that so we have two groups of people joining us today um unfortunately Mark kind emergency hit couldn't come um but you know what we're finding is we're going to bring the note buyers together with these Originators and sellers of originated notes and let them know you can sell a note make a great return and go do it again yeah you don't need the bank you don't need anyone else you can come to us we'll buy you out getting into WS getting into all the kind of things um and for these Originators we need to clarify to them what kind of paper are you creating it are you doing correctly what are some of the gotas that no buyers look for so you can refy out for second and that's just it you know it takes me right back where when I first started originating paper I as I learned more I learned how I was doing it all wrong and I I you know had to make all kinds of adjustments and fix a bunch of things and we're kind of finding that now like people that are in that same boat where not necessarily they're doing it wrong but for our purpose as node investors uh we need we we focus on different things and we need to have things lined up the right way as in case of whatever and and just having clean paper that we can deal with for whatever it is we need to deal with it yeah so when we got into this idea of originating notes it was something I've never done before right and we're slowly learning what comes together with that so we can buy your paper but what we want to lean on today is creating that paper that legitimate paper right um but also on the flip side making sure your numbers are built well enough into that note that when we make an offer we're not going to scare you away right yeah yeah exactly so um like I said before uh we unfortunately Mark has something he had to come up with um but we do have Nick on here um that you know Nick has been someone that has been around the space for a long time uh Nick's been someone that uh I've met years ago didn't realize I did um at a no conference um but it it it's amazing where the connections come back when we got on a phone call and you start talking about these things we're in the same game as nickas which is really cool and they're his group of people and his Facebook group and everything else and us can build a huge Bridge to connect everyone together right do everything right over here you can sell to us and refinance everything so Nick I appreciate you jumping on this morning um and spend some time with us awesome and your knowledge and experience not only for us which we're going to learn today but also for how to create the notes to sell right can you give us a background of how do you get into real estate yeah well that's well you know now it's funny because now the cool thing to do now the cool thing is aist list to the old guys right the old guys were around when this crap hit the fan in 20072 2008 I I speak I speak a lot and I was at I was at a uh an event and there's maybe 300 people in and I I asked the question I go hey who was around raise your hand if we were around in two doing real estate not even notes just real estate in 2007 and you could count on two hands the number of people and I go that's the problem right it's not that there's a problem with being in real estate and there's a lot of things that I wish I had available then that I do now but you don't know what you don't didn't get the chance to experience I wish I could show you this picture my literally my dad sent me this is hilarious uh he sent me a clip I gotta read this to you because you guys will not believe this if I just said I I don't want to I don't mess this up he sent me a clip from an article in the newspaper from two from 1990 excuse me 1982 CD rates CD rates they the the yield was 14% holy cow 14% can't make it up I'm looking at it right here are you kidding me he goes that was when I didn't have any money when I he goes when there used to be 18% he said yes I go people don't re what that this is where I'm trying to get to right now is that rates are not High guys right now nope if you go back in history of time and you look at what mortgage rates have traditionally done this is this is only High relative to what we've been experiencing in literally the last five or six years because in 20027 20072 2008 rates were probably even a little bit higher than they are still even right now so the reason why I bring all this up is because you like you said earlier you have to be able to make pivots and and changes so when I I first was in I started out as a real estate investor okay so I have the experience of being on the real estate side and then I went to the dark side which is what I call the notes right so the notes I started a company in 2012 with my partner John Montero a company called RX capital okay and the whole point that we did we built that business to sell and not from the not that we knew that we were going to sell it but we knew that if we used an implemented best business practices then we would be we would it would it would benefit us regardless if we stayed in the deal or not well fast forward to 2018 we actually end up and we this was a seller financing business so okay was creating creating notes from scratch buying properties fixing them selling them to owner finance buyers that were not uh Traditional Bank borrowers and we end up building this huge seller financing business wrote hundreds and hundreds and hundreds of notes and we end up selling that business to a literally a 100- year old federally Chartered Bank okay so it was uh I joke about it because it was like a nine-month proctology exam because I mean if there's anybody that has more um overhead and compliance issues and just regulations and Regulators it's the banking industry so the reason why I bring this up is because I don't know everything about everything but I do know that for us to be able to be successful and do what we do what we did we had to know had a pretty good idea of what we were doing and so as a result of that brings us to where we are now today is where we have with the USA no proo and the creative dealmaker on the teaching people how to do that same strategy um it allows us to create Bank quality notes that other people just either don't know how to do or don't know where to go right so really really important because when you look at that $ 30 billion Market in Industry that you you talk about which is all the notes that are created that aren't written by Bank of America or Wells Fargo or chase or whoever they're individuals right they're people that are listening to this call they're they're they're Mom and Pops they're one-offs now I'm a professional note writer and this is what I do and there's other people that do it as well but in that whole universe of the 30 billion less than 5% of them do more than four notes a year okay so it's a very fragmented very fragmented business and industry well the problem with it in my opinion is that people write all these notes but they're just not well properly created right they're missing things you know we talk about this all the time when you go to there's a lot of people that teach you how to go evaluate a note and very few that I know of at least that tell you how to structure it at a at a bank quality level so to your point you can get maximum value because at the end of the day let's be honest do you want something that's shiny and new and you know it's going to perform or do you want something that's used and maybe it does and maybe it doesn't right that's why Banks don't sell their notes a lot of times to people like you and me guess who buys them all Fortune 500 companies hedge funds private Equity groups family offices guys that buy you know tens of millions of dollars of notes and they pay a premium for the paper yep but why is that it's because it's all about asset preservations at to some point they don't want to manage a problem just like Banks don't own real estate they control real estate they don't want to own it nope nope no when it gets into the secondary Market the last thing they want to do is own it they don't want to own the property they just want the cash flow from the note and they want to lend they just want to lend they just want to be a lender they just want to control now there's people that will say well I can fix anything so bring it on cool there's a place for them in the world too but I'm G tell you right now the last thing I want to do is have to deal with the non-performing no or be or have to deal with the landlord be a landlord or be a you know deal with a tenant I don't want to do any of that stuff because that's a job and I don't really not really looking for a job so why did you start creating notes like how did you go from the real estate you know that's a great question I you know I always I always get asked how we just got how I got involved in this and how I got started you know it's been a long time now man I started this a long time ago and um it sort of was I got a little bit lucky I guess to a certain extent because I didn't understand amortization back then yeah I didn't understand why but now I do and once you understand how imization works and why Banks do what they do you go holy crap why would I want to ever be anything but a bank yeah honestly why would I want to own like here I always say this we I want to own I want to own notes relative to single family residences but I would but if it's but I don't have a problem owning assets that is commercial or multif family or something like that just because of the nature of the two types of assets but to your point so I started uh I started seller financing a long time ago I had a property I came out of the I came out of the crash I did everything wrong before there wasn't education there wasn't zoom and and Facebook live and stuff like we're doing right now and YouTube to really educate people on how to prevent from making mistakes that's why I'm so animant about doing things like this to help educate because um it's really the key to understanding what you can do but also what you don't want to do and I I you know I made a lot of mistakes I didn't have REI clothes back then didn't have education and like we have it today and I had a property and I I bought it or I didn't buy it I mailed to a list I got a property that came in and this was a long time ago and it was a cheap property I mean super cheap and um the lady goes I want to uh sell it she goes but there's a tenant in there so please don't go disturb the tenants I'm retiring from General Motors I'm moving to Florida to be with my near my my grandkids I said fine so I drove by the house and I go oh that's what a 30 that's what a $225,000 house looks like remember this is a long time ago right you can't this point at a you know 25,000 you know is a $100,000 house it's a little was a little two-bedroom one bath poos 700 SQ foot house you know and it's and that's what you would see today in this was in Dallas it was what you'd see today maybe $80,000 right if you can even find an $80,000 house now and so I was driving down the street and I saw a sign I said basa I know know advantage to be dangerous so I said I call him I go hey I see you have a house for sale do you know anybody that might be interested in buying it and so forth so we went down that path and you know long story short is that we you know found out that there was a lot of people out there that needed financing that could not go down to a bank and get a traditional bank loan and now it's even more prevalent today than ever because here's another you know fast Factor whatever you want to call it talk about the $3 billion Market but get on what else there is about 60 to 70% of the population can't even go down and qualify for a bankr right okay so when you think about this and this is what sort of drives me a little bananas to be quite honest with you if 70 up to 65 to 70% of the market can't go down the Chase Bank of America get a bank loow okay and less than 5% of all properties available for sale are available through creative financing you think that you'd have them lined up 100 deep to be able to get into that house because you can provide them the ability to have home ownership when other when banks have told them no so it really really sort of baffles me when I see this poorly written paper and poorly underwritten buyers because there's really no need for it there's more demand for owner financing than there is for retail right now that's not going to change the other thing I want to say about that is that people always had a there was always a negative connotation relative to seller financing for a long period of time they thought it was stuff that you that a bank wouldn't lend on for example exactly or they thought that um it was a it was a it was a it was a bad buyer but the numbers say otherwise I mean I think the average now um for owner financing is like over $200,000 amazing amazing so you know once you but to your point when we can get into this in here the deal structuring yes is where the value comes in okay you know people say that you make your money when you buy the when you buy the asset well well that might be true in a traditional real estate model but in the note side it's not that at all it's how you structure the note yeah how you stack the collateral file are did you do a contract for deed versus a mortgage or deed of trust yeah okay is it in a Judicial or non-judicial state is it are you servicing it yes you use rml all these little things yeah are the important character characteristics that add up to a a premium note that like Banks do and I always say it and then I'll let you continue on is that what would a bank do corre that's the first thing I asked the question what would a bank do okay would a bank do a contract for deed no why would you need people could do contract for Deeds all the time I'm not saying there's anything wrong with the contract for deed I'm just saying Banks don't do contract for Deeds right and why is that because they don't need to they don't want they're perfectly protected if they write the promisory note and everything correctly they don't need and if they underwrite the buyer correctly they don't have to they have a good borrower right I mean seller financing does not equal bad borrowers okay it just doesn't it just means that they might not check all of the boxes that are traditional lender needs they their DTI might be a little bit offer they may have only been in that's de income by the way those who don't know DTI is DET yeah sorry their credit their credit score might be you not up to the minimum there's another fun fact okay I don't haven't seen the latest numbers yeah but up until um when I checked it the last the average declined credit score declined credit score was 708 wow declined wow the average I mean are you kidding me yeah that's I mean I mean 708 is a good credit score yeah I mean I'm just telling you my credit score is not 708 but I manage credit I use it I leverage it it goes up 50 points down 25 up 75 but that's just the way I but I that's I use it to my advantage so I can never go down and get a traditional bank loan and I'm fine with that because I don't need to I can do we're talking so I think a lot of people when they create these notes they think from the borrower point of view and they try kind of I need to get a borrow in place and I write notes originate but they don't realize the the the other side of this space of if things don't go right how are you in a spot where you're not going to have a problem right if your borrower defaults are you going to have a heartache going to foreclosure because you a maybe you originated too many loans for the year or you didn't hire a licensed originator yeah maybe you didn't underwrite it at all because you did a land contract not realizing that you need to underr right land contract if the borrower is still in the home so when you use these kind of things now under underwriter granted if you're experienced you can underwrite yourself however uh we do have Max call underwriter in the back end here um off camera but you have to understand that when you originate these loans everyone does this kind of stuff but if you don't do it correctly that's the first step for a note buyer to say I'm out well look let me to that point well they might say they're well they might not say they're out but it's going to cost you in the discount right and here's what people don't understand when you give up that discount you never get it back yeah it's gone forever and if you understand amortization you look at the effect of that discount inside of an amortization table it's a hell of a lot more money than the than the hard number that's on top of it yeah so one of the things that we we do and what I do and what I didn't do in the beginning is now we write first and second Mor lean mortgages okay ah and the reason why we do it is to what you're do what we're saying because we're thinking of it from the note buyer perspective and what are the what are the main things that a note buyer is looking for when they when they when they analyze a note to buy right what are the what are so you mentioned discount I wanted for those who may not know what that means so discount is the there's a balance of a loan either at origination or current balance and we'll going to pay less for that I give the example like a lottery right when a lottery is a billion dollars you don't get a billion you get a half a billion right so you're going to get a discount based on the unpaid balance because of the fact you're getting money now versus later so there a discount off of what the balance you have time value money that's one but there's other things too right there's how uh is the states there's the states there's the interest rate we're get told that but what start first off originally good paper solid paper right you know writing a piece of paper on a nap you know WR on a napkin what the terms are for a borrower doesn't always equate to a good Sol solid sellable note not saying if you never sell it it's not good but if or you want to sell it it's not clean that's I would say that is probably the number one so this is probably the number one thing that I see across the board more than anything is that when people go and they want to create seller financing okay and they go to a title company most of them still use a title company some do not they do it they do whatever but what happens they have somebody prepare their documents okay their lender documents on their behalf okay and you know Maxim probably talked a little bit about this too but when most do they prepare the lender documents from a legal perspective right okay that so they can file it they can record it they can do everything from a legal but let me tell you something I could give two rips about the legal side of it if it doesn't meet the lender side of it right because there's certain things that we need to have that they're written like how is servicing addressed in your promisory notes okay yeah servicing is a lender a title that you hire from a title company an attorney that crafts it are they even GNA ask you about servicing unless you tell them about it right probably not because it's not a it's not a legal it's not a legal requirement right let me tell you something you can service yourself but those who getting into notes were wanted I recommend getting a server sir because 100% if you do things wrong you violate federal law well that's that's a whole another issue of itself but if you for example you say I'll just self-service it great so that's fine well that affects the yield when you go to buy right so that's that's a huge discount that you're gonna have to eat at some point in time if you decide to sell in in liquidate but here's the other thing I see a lot of times when people do it they they'll go in and they'll put in the dollar amount of the servicing for example $20 $25 304 whatever it is okay well let me ask you a question do you think 10 years from now servicing is going to be $2 a file right no no no you think 15 years is going to be $30 a file for all we know with inflation it could be a hundred damn dollars a a month maybe be 200 we don't know but guess what's not going to ever change the borrower's payment the borrower's payment will never change until it's p in full right the principal the amount of money that goes to principal versus interest that will change but the dollar amount will not change really really and critical to make sure that you're writing promisory notes y even for your own benefit even if you don't say you want to sell you got to write them the right thing that's why we you have the transaction management company to do all this stuff so people don't it's like it's like gun safety okay I can give you a loaded gun okay but if I don't teach you how to use it properly you going to maybe hurt yourself or somebody else and I don't want to be responsible for that right so nobody does so you got to really understand it and just because an attorney does the doc prep doesn't mean they're doing it for the things that we need to have in place super important super critical because that's going to have a tremendous impact on the value of the note when you go to sell it yeah absolutely Nathan I know one thing we ran recently is the servicing question yeah those people are reg notes yeah I'll let you share like what we're running into so much of people origin notes and the servicing they're thinking they're doing yeah because a lot of people are coming from a traditional real estate so they're thinking about rentals which is fine and rentals are great I know exactly where you're going with this yeah scary but then the problem is they have a monthly payment of say $650 and that $650 they'll just record it as $650 every month coming in they they haven't even touched amortization and and what happens if one month they're paying 625 and then the next month they pay 653 and then they pay you know you know a late fee here and a late fee there and all of those things if you're just taking a dollar for dooll that could be a huge mess and like let's say that the payment actually uh according to the terms of the of the of the loan are actually $648 where you're collecting $650 well that affects what the principal balances over time so you can track it yourself but unless you have specific software for notes not for rentals you're you're not GNA have accurate numbers we're running to a lot of people using apartment.com I I I heard I I never heard of that till like a couple of weeks IO what the yeah so when I ask for pay history they show me a list of dates pay or another thing they're doing is they've got they'll collect uh principal in interest and tax and insurance y but then they don't separate it out so they'll have you know a $700 payment well 650 of that is the principal in interest but then they were attributing the extra $50 to the note as well no no no no no no that's let me let me let me separ thing this is really important and Max will will be able to chime in and appreciate this too when Dodd Frank came into play okay it was everybody goes oh my God this is horrible they're just they're trying cut the seller financing guy out of the middle because they're taking deals from the bank whatever it's the best thing that happened to somebody that creates notes and here's the reason why because you got to use a third a disinterested third party like called the underwriter to come in and do something else and guess who pays for that the Bor I don't pay for it the borrower pays for it yeah okay period all right just like they pay for the servicing at least when I write my my deals so guess what I'm going to do do if I'm going to have the Borrowers is going to be responsible for that guess what I'm going to do I'm going to find the best underwriter to do my underwriting I'm going to find the best servicer to service my notes I'm gonna do find the best attorneys to create my my my my legal documentation and and all of that stuff because we're writing these notes for 15 20 30 years I want to do it one time and get it right and not have to ever have to screw around and worry about it again because here's the problem that people don't think about when when they when they sell that property and they do seller financing and they go okay I'll take the cash flow that's great okay but here's the problem of all those people that 30 billion that we were talking about they're individuals they're in they're in they're individuals not uh not entities right so life gets in the way you know events happen people get sick lose their jobs uh you know have weddings need new cars you know go to college all those things and so there's going to be a point at some point in the future that they're going to need to you know maybe liquidate so you want to make sure when it's time to liquidate and you have't want to sell it to you get maximum value to what you referring to earlier absolutely so let's back up for a second right we have different people out there part of our our uh watching right now Nick you don't do any kind of WS right you you strictly stick with seller finance notes correct I only I only technically I only do wraps okay just by the nature of the just by the nature of the definition however I don't necessarily stay in them right so so for those people in notes wraps is kind of a new phrase I've heard of it it's not what I Min understanding Jersey doesn't allow it um but it's interesting so when you create this WAP what are some of the documents you need to have so that if it default you can prove the case that your new borrower defaulted you can foreclose and the fact that what do you need to get from the original borrower to make that R successful yeah so we don't I so technically everything that we we do is a wrap because there's some underlying debt that's already in place okay so by definition it is a wrap so if I have if I have my own lean on the property and I leaned it my say I own a property and I put and I leaned it with a company or something like that and I go sell it and before I sell because I don't I don't table fund the sell of the note right so if I did that then I probably wouldn't need to do a wrap but I have to do a a wrap even for a couple of weeks because I have to get the the everything recorded and then I have to sell the note okay so let me clarify what rap is for those no buyers because that was unknown knowledge to me what that word meant is you have $1,000 first lean in place a seller for whatever reason we won't get to wise decid to give me a property that may be worth 200,000 I take over that $100,000 first lean and then I create a secondary $100,000 but combine the other1 to make a $200,000 note for a new borrower I'm going to pay the first lean continuously or paid off either way and then I will make the proceed of $100,000 gain on that situation right the transfer deed happens what do you need from that original borrower to make that happen well that's a great question so I would defer that to my my attorneys that are doing all the doc prep yep you know because you're goingon to need stuff like power of Attorneys at least limited power let's back at Power attorney what is a power attorney generally for in just general terms um it depends on what you're do what kind of transaction you're doing but let's say you're buying let's say you buy the property subject two which means an existing debt of some type okay and you need to be able to communicate at with the underlying lender and you're not going to go back to the seller to do it because you maybe you need to get an updated um statement or you need to get uh uh an escro analysis done or something like that right it just it's limited from the standpoint you can't it's more for informational purposes not for financial purposes if that makes sense yep okay so um you know those are those are the main things because it depends on how you acquire uh how you acquire right but the wrap is just means that there's some underlying debt in place that that causes to be wrap so we have to disclose that you have to write the documents to your buyer and let them know that there again that's done through the the attorneys that are creating the lender documents on our side we do not lit not usually keep the WRA Mortgage in place very long okay for example we buy a lot of stuff using hard money or private money okay that's so if I let's just say let's do a a a quick analogy I buy it for I uh I buy it I'm all in it for $150,000 okay in it for $150,000 and I borrowed it with private money or hard money okay well they're going to lean that property so they're going to show up as a lean holder okay well the only way they're going to release that lean for that money is to get paid in full right more than unless you do in a launch whole another thing but they're going to want to get paid in full so the only way so what we have to do or what we do do and we let them know and it's not then no one has a problem with it we have to create wrap documents first okay so it's almost like buying it subject to to the existing $150,000 hard money loan in the rap documents but we already know what we're going to do once that note is created with our R buyer and it's recorded then we can go and take the note sell it okay and then and then if you're a note buyer you're not going to buy that note unless you're in the first lean position if that's what you're buying so the proceeds that come in from that is what actually goes the pay off the seller and get the lean released Abol that's what a WRA does when you sell the note you are paying off that that it has to get paid underlying debt well that's the only way I do it yeah and for me that's my preference we just talked to somebody this week where they would keep that outstanding loan out there some guys do that like so so what we'll do sometimes I don't want to get off in the Leeds on that but if we get seller to say that seller carrying that to us then we might do a what's called substitution of collateral right so lets me go do whatever I want on the WRA side and if I sell or do whatever they just want to get the payments a lot of people just want the payments so we'll just continue to make payments and then replace it with some other type of you know like property or asset that allows us to let them lean that because they still want to have their money protected in a lean position so you know that's pretty high high advanced stuff I mean for most people you know the the strategies what I think where where we're at right now where I think the the biggest bang for the buck is we deal with a lot of landlords right so there's a lot of landlords out there that are just getting tired of being a landlord Y and so how do you take the landlord and convert them from being a landlord into a lean Lord right how to control versus own they want cash flow but they don't want to be you know dealing with tenants anymore so this is the strategy you do and you can structure and they can stay in they can stay as much of a part of the deal look you don't have to sell 100% of the whole note right of the whole transaction you can create a first and a second sell the first keep the second or you can sell a partial right I mean you guys do both of that but getting back to what we're saying before when we talk about why we write a first lean and a second lean so when I go to sell the first lean and I have it written at a 70% for example investment Dev value versus a 90% I don't have to discounted as much because the note buyer is in a is in much more favorable risk position less position I wanted to just from what I've been we've been told correct with or wrong what we're hearing is you need to get a power of attorney to allow the new sub2 buyer to speak to the first lean and to pay off get the get the payoff balance and things like that and have the ability to speak to them and then get a um what was the other paperwork where you get a um authorization to speak on their behalf yeah so um I'm gonna put in our chat by the way the YouTube channel so you guys can see the replay what people asking for you know and I would say this if this if you want if you're going to start a because here's the way I look at I'm all about disclosure I am not the I I don't teach or educate on subject to okay there's a lot of people out there that do and do a great job of it but here's what I love about it it still comes into the funnel to create the mortgage to a seller finance buyer and then I can then once it's there we can then that's when it comes into the note world right now we have these notes that we're able to creatively structure to our benefit on whether we want to stay in it or we want to exit out by liquidating it that's the beauty of of what we're talking about here in my opinion my opinion it doesn't really matter if it's a seller finance deal and the seller will carry or it's sub2 or you go borrow private money and do it or you already own it the exit for me and the structure on the back end never changes it's question coming in we're going we're right now live on Facebook LinkedIn I think Twitter as well so um so one of the question came in was uh from Cindy I'm glad to see Cindy on we have a bunch of people coming on is what happened I mean if the note if the property sells there's a there's a call right from the bank how do you option of calling the option of calling core yes how do you avoid that option of call that the note har has in it that um as the question says Get Around the original lender call in the loan since most existing loans are not assumable I don't know yeah um uh they have the right to call the note no question about it but I don't know I don't I've never had one called so I remember I remember this question from a conference I went to in 2010 and and since then every single time I've heard it brought up the question then goes out has anybody ever had that happen to them zero it is you know here's where here's where the problem usually happens okay the problem usually happens in the fact that um they don't do the insurance correctly okay okay I've never heard of it actually being called I would love to actually hear somebody say oh yeah that's happened to me but to date no nobody I've ever talked to has ever I don't think there's any uh I I I don't know of anything the idea the IRS has the deadline after foreclosure to redeem the property exactly but they never heard of it happening no so it's like yeah I you know I'm in a Thousand-Year flood flood zone and I guess Theory it could flood but it hasn't ever flooded and it could the question that came up from John was that you know does the power attorney be in the state of him or the state of the borrower where the property's located you know that's going to be I wouldn't I wouldn't even attempt to answer that because there's there's like our attorneys will create all that documentation relative to that type of transaction so if it's a if it's an if you're trying to acquire something with a sub two you know and you want to close on it then there's a whole set of documents specific for that type of acquisition that that we just utilize that's been created by you know legal councel that tells that that how you do it I would never go and try to do any of that on my own and I wouldn't trust my so do it and every State's different yeah every State's different you got judicial you got non-judicial you got different state laws you got user lists you got there's all kinds of things that could impact that and so and my experience I'm up in Canada so I every once in a while I have it where I'm selling a property and uh what I've run into is that they require a US notary to notarize the signature which is a pain in the butt because now I live further away from the border than I used to I used to just drive down now I'm a couple hours away so it's not worth it so what I do is I just issue a power of attorney for my realtor to go ahead and sign on my my behalf and so I issue it from Canada they record it in the state where that property is that helps I'm gonna guess that it's where the property's located because that's the and you're getting a power of returning from the borrower to act on their behalf yeah that's my guess I mean at the end of the day for me and I've done this literally thousands of times okay and I've been doing it a long time and one thing I'm not going to do is I'm not going to underwrite my buyers I'm let somebody like Max do it I'm not going to service my notes I'm GNA let like FCI or Madison or nams or August Ari do it okay I'm not going to create my own promiser notes to save a few bucks I'm gonna let my attorney do it and I'm just going to do it that way and I'm gonna build the deal I'm gonna make the deal work under those constraints or I'm not gonna do it I do that I'm the stupidest man in the room you guys do all the professional work I'll run numbers there's no reason there's no reason to makeing any more difficult than that it just isn't you know so let's switch gears here right we created this note we have our power of attorney for WPS and we have our idea we're going to use a serer because it makes sense right we're going to talk about how to sell this note for the top dollar what are things that the originator who may be originating notes now doing that may be incorrect right and or can add on to a note to make it worth the most amount of money to be able to sell it tomorrow and not be surprised when they get a quote from us and going holy goodness maybe let's start with just terms what kind of terms would be right well that's a great question I think the terms is probably um the terms of the of the deal is probably one of the biggest things because look as a you guys are note buyers let's look at it the note buyers perspective working backwards what what's the probably the number one thing that you're looking for relative to buying a note property right the property itself and my return look at the asset that's one I have the collateral file yeah right I have the the um the numbers right what my return yeah what's your return right so your yield right so if you if you are in you know you're if let's just say you're trying to find get a h a 10% yield okay okay well and you and you're trying to buy a note from somebody I don't care how good the collateral file is I don't care if the borrowers got an 800 credit score yeah and it's at a 50% LTV and a 40% ITV you're not taking a 3% yield am I correct that's correct never on a million years so let's talk about things that we don't care about as no buyers we talked about the last webinar in December I don't care the borrower is overal handyman don't care I don't care that when the borrower defaulted what happened all I don't care right I don't care how you found the deal I don't care what kind of fridge you rehab the property with yeah right there's numbers that go into our our world right and the note in comes is the five big numbers right we have our balance of our loan we have our interest rate we have our term we have our p and a balloon if there's anything right and how you stagger that if you have a balloon in two months or 24 months or whatever it's a mathematical equation to equal out my yield or irr number so when we say terms that's what we're talking about those big five numbers yeah yeah those are Paramount R is obviously super important when you write the note because what we're seeing you'll seeing this now okay I would never write I would never write interest rate that low right and here's the reason because rates were were historically low a couple years ago three three and a half percent so a lot of seller financing guys go well you know what the bank's at three I'll be smarter than the bank I'll write it at four yeah what is that getting you now 50 cents on the dollar if you're lucky yeah yeah maybe not even right maybe 30% 30 cents on the dollar so that's that's one I mean I think that's probably the biggest yes I mean obviously the asset the borrower file is important yes but I think there's I think the other challenge that a lot of people um don't really take into consideration there's a big difference between what you sell it for and what the value of the property is okay oh yeah and a lot of times that we see people because they are offering seller financing they want to sell it at a premium okay so the house is worth 200,000 so they want to sell it for 220 okay now I have no issue selling it for 220 if it's worth 200 it's if that's what the agreement is but you got to understand that when the note buyer is going to go look at that asset to buy they're going to base it on the $200,000 because that's the risk level right so you have to be able to adjust it accordingly to your point and figure out what that discount potentially is going to look like now if you're G to stay in the deal and you can get it cool you know here's another thing you can do what's Adam sorry we compare similar to rentals right a possibly a rental that's fully paying right ten doing great if you sold a a tent tented occupied property paying occupied most people pay based on the cash flow we're doing the exact same idea same thing we have a promisory note that we're going to get cash flow in and we're basing a base of return we may be getting private Capital we may not but we want to guarantee our annual return for our dollars and that's what we care about the numbers if it's performing or non-performing now if you have a non-performing asset that's where me and Ethan kind of grew up on with nonperforming assets because we are buying at so well priced and we can do all the Foreclosure work if anyone out there has a owner finance note that's not performing or imp performing I I'll drop in a link in the uh in the chat or reach out to one of us afterwards uh through our the link I put in before where you can ask us hey I have an asset that I'm looking to sell what would you bid it at but we're going over one of the key items to make that higher value if you send me a loan that's written at 5% good luck good luck yeah the other thing I'm still willing to buy it but the discount is going to be big and you may not like that well and the discount might be so big it becomes it becomes a loss not a not a not a not a deal for the for the the seller of the note right and I think the other big part of this thing at least it is for me I don't know because all the notes that we've created who the note buyers have been um is the the underwriting of the buyer right and I don't mean it necessarily from you know the fact that they got a a 700 credit score versus a 600 credit score I'm talking about all the documentation the stuff that Max is here maybe we let Max talk about how critical the rmlo underwriting process is because for me you know when it's done correctly there might be 35 disclosures in this package okay you got the Patriot Act I mean maton probably talked about these disclosures are they important to me not really but they're they must be important to somebody otherwise they wouldn't have you doing them right if you go to Bank of America and you go get pie for a loan for for a mortgage guess what you're going to have you're going to sign probably 60 different times on that loan package why is that okay it's disclosure disclosure disclosure and you know so we have to be able to think that in consideration it gives and it gives people that are looking at a snapshot and taking a picture of the note and looking and what degree of probability will this loan perform right that's one of the things we're looking at and as a result of that when you see a file that's stacked with 600 pages and has 72 signatures on the borrow from the borrower and you see a another file that's written on a napkin and they they say that the the borrower pays them every every first of the month in $100 bills okay which you know what I'm saying that's what that's what we're trying we're stying to establish the the the the risk because risk is a really important part of this of this equation and this probably the one thing that you really can't you probably can't uh um you know put a dollar value on right when you you know you can't it's hard to monetize or how to um you know let ma jump in here too yeah talk aboutone yeah so um max is a caller he's off camera um he said he has a face for uh radio so well let him stay off camera one of the things is you mentioned before States now if you're if you have a property in Texas that's different than having a property in Illinois New Jersey South Carolina why is that if it defaults it goes goes through a legal process called foreclosure which allows me to get a property back because it's secured by the not now when I do that exchange of title going from the borrower to me as the Lend so I'm gonna take the property back because I I have a secured note when I do that what happens there is each state is ran differently right Texas you can do it very quickly less 9 days where in New Jersey and Ohio you're looking at over a year so My pricing also has a timeline on it I can return my Capital 90 days or 18 months yeah so I'm going to price it with that risk level of saying what do I get angly in Texas I maybe able do it four times in a year so I can buy that a much higher discount knowing the fact my money will come back quicker right if it's not performing now Jersey I have to 18 months I have to Discount even more because it may take me 18 months plus all the property taxes included so one of the key factors if you can originate notes more in like the non-judicial states like Texas like Missouri like Georgia like all these states it's key now facet is also we have debt licenses as note buyers certain states require debt licenses for not buyers outside of having a servicer so States like Illinois is a state we typically stay away from because it requires a debt license and it annual cost to it and insurance bond and whatnot so some states are worth it some states aren't so you're able to create paper in states that we don't need a license it's more attractive right so um what other facets Nathan do you think that these people who are Creed notes should come into play where it would make their paper more valuable the the biggest one is that interest rate and and as much as we talk about uh you know charging a higher interest rate so in the creation of that paper where you say okay I'm going to sell you this property for you know 150,000 200,000 whatever the number is um where I found the most success in in getting making it the most attractive is uh High interest rate and then you can offset that to the borrower they say well holy smokes 9 10% interest rate that's really high and you say okay yeah and going to stretch it out over 30 years to help keep your payment low if they are able to do a higher payment that's even better and then you can shorten up that that amortization to 20 or 15 years or whatever the case might be but but this is where that note math comes into play and you got to know how the different how the different Big Five affect each other yes so that you can mess around with it making a really nice we just talked about this in our last we of a five we course and actually 10 week but we're in the third week of our five week um we talk about note math and if you don't know the note math you're buying a note and the math that goes into this is key from origination to buying it so on the creating on the creating side that you got to be so here's the other challenge right you have to be able to do some kind of calculation this is what we teach in the creative dealmaker Academy is that once you go to closing with that borrower and they sign it it's game over okay it's done you're if you agreed to 4% mortgage and you signed you got 4% if you forgot to put servicing into the deal you can't add it later if you didn't escrow taxes Insurance guess what too bad so you know let's clarify why interest rates is such a key it's your return a year plain and simple right if I put money in a money market right now 3% I'm making 3% a year if I put my note in money in a 4% note I subtract my servicing fee if it's 9 include the note or I'm going to get 4% of my money now if I'm using OPM do you think I can borrow money at 2% right now and get a 4% no right if I'm using my own money or anywhere else I can put money to work right now with 10% passively so I'm not going to take the risk level so I'm going to have to Discount to maybe 12 15% so if you don't if you write a 4% return a year and I'm going to bid at say 15 you have to understand the note math changes the interest goes from a 4 to a 15 and watch what happens to the PV your balance alone that's my purchase price that's how drive it down it's it's it's massive and you can technically you can change whatever you signed on closing day you can change that later but it's probably going to be a pretty tough sell if you've got your your or you can surely change you can go and try to modify but but you're going to say okay so just kidding you're not going to pay 4% anymore now you're going to pay eight that's GNA be a really tough sell so what we teach and what we try to show inside cre viiew maker is that let's just say instead of writing one note we break it down and write two okay instead of WR instead of get a second one someone mentioned a comment about creating notes and I want to ask you before we get to 8020 Rule people write this thing idea of putting 10% down so how does 10% down affect a note buyer right it's a warm fuzzy feeling but it doesn't go into my math at all right because if it's underwritten correctly I know the borrower can do talking about APR and that's just the the the prime offer rate it's like liore right it's an index but so my question my question to you is this how do how do the how do the state Usery laws impact the ability to write clarify what Usery is for those people may not know yeah you bet okay so um user is a state uh limitation on the amount of interest that can be charged on certain loans it's not the same in every state the federal The Dodd Frank side that we help maintain compliance on a lot of people are always surprised to hear this but federally there is no Max interest rate so federally if your borrower can meet the eight elements of ability to repay mean meaning State specific residual income debt to income ratio credit worthiness two-year work history twoe income history all that all else being equal your borrower can meet the ability to repay the feds don't care if it's a 30% interest rate all they care about is that that Piti still fits within this borrower's uh realm of comfortability with respect to gross monthly income but then you enter the state specific Arena and that's where the interest rate matters and so I always try to tell people when you're originating you individually need to sit down with your team in your state I I'm not an expert in all 50 states I'm the first to admit that so the investor that that originator needs to understand in the state that they're originating are there any limiting factors to the interest rate and then let that guide where they go from there and unfortunately there is a state or two that they're set so low that it doesn't really make it right now you know when the Apo borrow was two then they could still write them at eight and that was great but there's a state or two out there right now that I can't imagine anybody wanting to write paper in because uh you really you can't even hardly compete with a bank so would you say 9.5 is average just below average where should people be kind of aiming at right now yeah right now 9.5 to probably 11 is very average on Stick built now I do a lot of mobile homework I'm doing mobile homes up into 15 wow so um mobile homes is a whole different matter though and a lot of people don't want to touch them um so mobile homes tend to run a lot higher but yeah stick built home uh real common now to see you know probably 10 10 and a quarter is probably pretty average right now that tells you that spread is a lot narrower now right uh you got a you got an APR almost seven and and an average note now is 10 that doesn't look as good as a year and a half ago when the average note was nine and the APO was a little bit over three or a little bit under three and a lot of times people want to guide to their borrower and say listen I'm going to help their borrow out granted you you have to by law and I think you should make sure they can pay but you also understand the fact that if you want to refy out or you want to sell it off right if you write a note at 111 12 the bar can refi next year they can get you out which is great you get paid off earlier but if you're down at the eights and nines get as high as you can without screwing the borrow over because if you're looking to cash out you need to do that right without going over I'll tell you what we do a lot of times and just so anybody out there listening knows if if they bring something to me and want help with that I do all the time a situation where we just basically back into the payment and so a note Creator will come to me and say you know what's the max that this person can afford so I've structured a very general deal but we haven't settled on uh an interest rate yet um and so I'll calculate all of their gross monthly income up and and essentially say you know this person if they'll go for it you can squeak them in at x amount of interest rate and still keep them under DTI and keep them within residual income anything more than that then they'd have to bring more money down or or lower loan amount or whatever and so I kind of help them figure out what the max is that they can get right and still meets but also the term is a big thing for us too right understand the fact that if the term is lower our discount is not going be as much because the change of term right if you're working a 30y year versus a 10 my discount won't be as much you can do the math and a financial calculation but my discount won't be as much because it doesn't take much to change that yield number on a 10 year versus a 30-y year right now back to what Nick talked about the day20 thing those are creating notes I I encourage you guys to submit loans to us we'll price them out for you uh we have pretty much automation system to do a lot of stuff but 8020 loans I think are the way if you're creating notes to do it as best you can I don't like the whole idea of land TR land contracts because technically thing you created 8020 Land Trust who owns the property if you sell one of the land trust land contracts it doesn't work and I'm curious if anyone has ever done that please put in the comments or whatnot but 8020 is basically saying if I'm going to create a 2 $50,000 note I'm going to create a $100,000 first $150,000 second I can sell the $100,000 first to whoever and keep the 150 as at that or if it's 300,000 I can create 250 in a 50 and keep the 50 and keep payments rolling in and get my cash out of the first one Nick is that kind of how you guys do it yeah I I I actually go we actually have lowered so when I started doing this we it's a moving Target for like I will never negotiate interest rate with anybody period my rate is my rate and if you don't like it then don't buy the house okay I'm not going to manage the problem right because I already know what the answer to the question is when I go sell you the note okay I already know all things considered I already know what your yields going to be and if if rates are going up and inflation's changing and people are changing it like you said you know I I just showed you when we talked when we started how how CD rates were 14% now they're not going to go to 14 back in 1982 not going to get there again but the higher other things start paying relative to a 10% yield or return the harder it is for my my me to compete like for your money right as you know because you have a decision to make because you're an investor right you're gonna say I got a $100,000 where's the best place I can invest that $100,000 relative to risk and return well if you going get 12% in the CD in this example versus 10% on a secured mortgage note by with some borrow you're probably going to take the CD so we want to create that Gap as much as possible and the only way I can create that is by controlling the interest rate so I know when we discount it back to you so what we started doing is you know before here's a big challenge okay and I don't know I'm curious to see where you are on this Dave is that when we first started doing this I was writing first leans at 78% or less okay okay okay and now I'm down to 70 to 72 because what's happened is that real estate prices have not are not increasing like they used to be they're they're flattening out or even going down in some places and so when we do the note one of the things that that determines what you're going to pay is what it is what the the what's the investment to Value right the ITV not necessarily the LTV or the loan value investment value so if I'm wrong on my assessment of value and you come in and say well I don't think it's worth 200,000 I only think it's worth 190 well then you're setting it and I lose that opportunity so by going to a lower first lean I get the benefit of having being in a better position and I just move that to the second lean which is my profit or my my staying in the deal that's how I minimize getting hammered on the discount when we go to sell and it's a better deal for the note buyer at the same time it's interesting you ask this question this is a question me and Nathan left about last couple months um ITV and LTV was something we never looked at because we didn't have it right we most of the time our ltbs in 2010 11 12 were upside down we're under water and everything right so LTB was like we can get below a hundred like right like so for us to look at now and see I'm concerned it's a little interesting right the IB is definitely there but you know because ITV is the fact that whatever is lower is the balance of the loan or the value of the property which one's lower I'm going to basically go off that number but so we're looking now at the fact that where do we think the Market's going to go is this going to go up or down values of properties if the property Val go down I want to make sure my ITV is lower because of risk level my LTV is there too but I'm not concerned too much about that as much as Max is right where my concern is now is I am curious where we're all at I I'm shooting around 65 70 because I'm not sure but I'm kind of staying that that Mark for LTV reasons right uh ITV it still comes back to what's my return um per se because I can always get rid of the deal so I'm actually not plugging too much of the ITV stuff I am concerned with the ltvs as they come across um but I know the fact that the market is kind of flattening I don't see a drop it just stays on markets are extending uh whatnot what's your thought about itvs and LTV yeah it's a it's a weird one because like you said we used to deal with with negative LTV all the time that's all we ever saw so now when we've got we're in a we're in a position now Banks do banks write negative LTV loans I'm just curious no no okay I'm just making sure yeah what now we're in a position where the market is dropping or and and dropping flattening I we don't know and that's kind of the the thing so if we've got a 10% down payment that somebody made okay so there's 10% uh 10% equity in there that's great and then what what happens when the property drops by 20% in value and the person stops paying so it's it's a bit of a tricky situation for node investors because like Dave says usually we'll pay based on the lower of the balance or the property value yeah and if we're seeing property values drop how low are they going to drop and we're we're kind of and do a little bit of guess work there uh to see you know if we buy it at a percentage of the unpaid balance but then the value drops below that are we still protected that's the major question that's a great point but it's only a problem until it becomes a problem in the borrower default right so so you gotta have a lot of things happen right it's that thousand year flood insurance right same thing but if you if if if we do a good job and follow best business practices from the beginning we an armal we service the that we under we take a 103 application on the borrower we esro taxes insurance we get a valuation from a b or an appraisal on the very beginning and we stacked the file correctly everything you're talking about is not nearly as impactful if if you didn't do any of it so and then you throw in the fact of going to a lower uh ratio on the property that's why when we do the when we create these notes and we teach it in the in in the in Creative newm Academy it's a win-win win deal because the way I look at it the no Creator wins because they're going to get a better they're going to give up less of a discount and they're going to get more money back the homeowner the the new homeowner wins because now they have a chance to have a home ownership when other people have told them no and then the note buyer wins because they're at a lower investment to Value so their risk is down but here's the thing they also have the note Creator staying in the deal yeah in a junior lean position which is where all their profit is yeah and I agree and I think that's the and everything so you have a little bit of the golden handcuff sort of tied to it and collectively all that and having really well stacked property file look we can't predict the future but I tell you what I like my chances because I've seen the portfol over the years and our default rate on stuff that's been created either in house or through our through our under our toolage it's it's one 100th of what the the the the the national average is so look doesn't mean that they can't default tomorrow we can't have Co 2024 hit no of course we don't know that but you talk about value properties you know what I did years ago is I created a due diligence portal allowed me to kind of aggregate everything that I can get online paid nonp paid and come together with an idea number when we bid on an asset we're bidding on a a guesstimate of what the property value is we don't dive into getting a BP right away um and to answer the quick question LTV is loan to value I TV is an investment to Value so I use my the d portal portal jtp Holdings and allows me to get data numbers right and then through our we are we have our course our building confidence course we teach you guys how to to figure out with all these values how to calculate these things right and then what you have to also say the fact that it may not still stay performing we also have to know the fact that it may default and it means I have foreclosure costs holding costs servicing costs to play that if it defaults what do you do right because it you can't I don't care if L's been performing for 10 years doesn't mean someone's not gonna pass away someone's lose a job someone's get sick right but I think the way that Nick and his group are doing it with the first in a second I think that's really the way to do it especially right now that that protects everybody involved and it makes the note buyer feel all warm and fuzzy because then they've got a lot of a lot of abely to your Dave to your point if you're if if the property's worth 200,000 and your cost basis is when you buy the note after discount is on the first lean because you really don't most people I shouldn't say all people don't care who's behind them do you agree care if there's 15 leans behind you if you're in if you're in the position you want to be in usually the first so if you're in the first lean position on a $200,000 house and your cost basis is let's just say 140 okay and that property goes down 10% in value and the or defaults I got to believe at some point in whatever that number is you feel pretty darn comfortable you're going to get your Equity position back as a result of it see that why do we care about Equity position when it goes to foreclosure auction right that property is G either sell third party or default back to us and we have to sell it so if that value of property 200,000 more than likely it's to sell it auction or when I get back I could probably sell it for 140 and get my money might balance out you you do we do know this for a fact you have a lot better CH getting your money back if you're only in it for 140 than if you're in at 160 or 170 or 180 would you agree on that right so that's all we're trying to do is mitigating our RIS we'll never we'll never buy a loan over what the upb is for multiple reasons if they pay off tomorrow I don't get my money back right I can only get up to what they call Legal balance which includes tax we talked about in our building confidence course but you get all that kind of stuff but you need to be calculating if you're buying these notes don't I don't care how long it's performing you've got to calculate the fact that if it defaults because things do and could be no control of the originator it could be no fault at all both parents die and the kids have the house and they can't do anything with it like what do they do right things happen it's out of our control sometimes and they happen more often than you would think I mean we've that's Dave and I grew up on that like you said it's up to year mortgage right life happens in 30 years nothing happens I lost my ha 30 years you know so you know I think 820 rule if you guys are doing it it's great and if you can sell those notes to us we can give you that money you can go buy another note or buy more right we talked to someone recently who says listen every $10,000 I can go get a sub2 property and get into it for 10 grand that has $100,000 in equity can you keep funding me and answer yes all day long as long as my yield number equals I can buy as many as I as you want to sell me at a good number yeah my position on this stuff moving forward is that I W toite I'm GNA I will always write two notes yep and I want to write my first note at the lowest dollar amount I physically can write it at that puts me in a position that I'm comfortable with from a cash position right so if I can write it at 52 cents on the dollar if I can write a if I sell it for $100,000 and I can afford to write it at $52,000 I'm going to write the first lean at $52,000 because I'm that's just going to be a lot better for everybody involved and plus I get to stay in some of that deal as well in in a junior lean position in the second note and then I don't have to worry about as much on how somebody going to be able to come in and you know take that away and most people let clarify first and second leans has nothing to do with how much money the lean is worth a first lean could be 20 the second be 200 it's the order of the county records of recording right jump over it first second it in fact in fact we're seeing a lot of first notes being smaller value than the second notes now because of the equity position that's that's happened because values on properties have gone up yeah cost bases may only be $100,000 the property's worth 300 now well I only need only need to clear $100,000 of debt and I'm okay staying in the deal for the Cash Flow by doing it the other way so if you're if you're part of Nicks group and so like that and you're looking for people to buy notes pick our brains reach out to us right please do we'll buy them right if it goes nonperforming you get really scared we'll come and save the day for you right that's what we did for years yeah don't call me on don't call me on the nonperforming called Dave and Nathan man we're very interested ining absolutely and if you're looking at partials which didn't get into this call it's another option to do um we've had webinars on partial we probably should do another one again soon but partial is another way to get some of your money out it's similar to the 8020 I'd rather you do an 8020 than do a partial but you can do that whole facet I'd rather buy the whole loan than actually buy partial but I can make both work um Nathan's trying to figure out how he can make it work on his side so Nick for your experience these these people getting in what are some of the big mistakes closing up here that people are making with either originating or selling a no well I think on the origination side I I I think they really need to understand you need to work you need to work it from the from the end backwards okay so uh even if you don't intend uh to sell a note you probably need to structure it and look at it as if in the event that you do okay this is on the creating side right so you want to make sure you do it so you don't have to go have a fire sale and end up having a scratch a check to get out of the deal that's number one so you want to know like what would somebody you know what would an the indicative bid be on the note if it's created this way and and it's underwritten from the rmlo and everything's stack correctly you need to know what the market will bear if you're going to create that's my opinion okay on the Note buying side you know it gets back to you know what's your propensity for risk okay because everybody has a different different uh definition of risk and and some people a lot of people have a different opinion on what a solid return is okay right because if you're a family office and you're sitting on a hundred million do you're not you're not trying to make 12% return on your money no right you're trying to preserve your hundred million through and you're trying to get a solid return that outperforms inflation that's what you're doing so you want higher quality stuff so it's really just you have to understand really where you want to be in this and what you know I'm older I have a lot less lot less chances to go back and fix a pro you know do something over and over again if I was 25 years old or something I may have a different opinion on how to structure this stuff out right I might be a little bit more willing to take risk take something that's a little bit on the on the edge of being a rep performing non-performing judicial state note because I can get it at a thing and I don't really care if I got to take it back because that's what I think is cool and I'm I'm I'm happy to do that I don't want to do that anymore so I think those are the things I don't if that answered your question but you just need to really you really need to whiteboard this out and think it through and not just say hey oh that looks like a good note to go byy because I'm gonna get a 10% return and it's down the street from where I live because if you live in Chicago and it's down the street that might not be the best repl to be investing in a note yeah you know because it's all it's all relative so anyway before Nathan you asked that the your final question uh Drew wanted to comment your question about um creating mobile home things and his different family homes I suggest you reach out to Mac call the underr go directly you can Google it and you get information about Mac uh I reach out to him directly ask him what specifically you would need for mobile homes and whatnot um and someone ask also can we price out a note that you want to hold for 12 months and whatnot you know you want to create this month and you want to know what we pay a year from now I can do the math on that but don't hold me to the quote of my price right because if so let's look at let's look at it let's compare apples to apples okay what's the difference between a new note and a 12 month and a 12 month season Noe let's in you know all things equal how much is it another two points Four Points six points for me it's two points two points huge difference so this is a great question here because we should asked this earlier we're losing people here yeah here let's talk about this because my position is um you know you got to ask yourself the question is the upside gain worth the downside risk okay so if I hold it for 12 months and there might be some tax advantages of doing that but that's beside the point I can get an extra two points so in that situation if it's a $100,000 value I might be able to get an extra $2,000 according to you da right let's just say that note doesn't perform in 12 months and it starts underperforming now what's the value of that how much what's the deduction on that so the dramatic discount on the states and stuff like that it goes downhill a lot faster than it goes up you agree absolutely it could drop five seven maybe 10 I maybe should targeting say 15 but if it goes not performing I may be targeting 25 and the reason is I can't get inside the property I can't see the condition of the property will the borrow file bankruptcy what will happen we can't predict so my risk level goes up so I got to higher for my returns right and just to clarify what seasoning means everyone considers seasoning different right table funding is at the table you to double close an idea some people want three months some people want six right we're targeting around three months right now um Nate will buy at the table right T yeah right but if I bought the table I'm gonna increase it 2% you know it's just what we do because the risk level of is this boring to continue performing if not I got default and consider that if they do perform the risk level is still there but I would like to make sure I'm covered yeah so we could price that alone a year from now but we don't know where the note will be nor we know what what returns we're going to want a year from now it may not be exact but it'll give you a ballpark anyway hey what if CDs go to 14% in a year right right if why would I buy your note it say even say 15 when I get a guaranteed return in a matter of at 14 it's not about the fact that well CDs are 14 I you could buy 15 it makes sense no because there's still risk in our note space yeah so if CDs are 14 I'm probably at 22 20 22 I'm a much higher number the inverse applies the inverse applies too if it goes the other direction and the market starts tanking you know we're targeting 10 nine 10% three years ago yeah we were there because what the money was where it was so it's a matter where can our Capital go what return we need on our Capital so um I think that's all the question we have on here um so max is Tennessee one of the low Usery State Mack doesn't get involved with the usury law right that's something for you to do he does the underwriting side of it right under Nationwide yeah I he's Nationwide kind of underwriting so if you're question about underwriting that's max if it's question about Usery law that's your local attorney or your originator in your state yeah doesn't originate mattx only underwrites he just say underwriter call the underwriter that's him just so you guys know just a quick point of clarification we are doing full Loan originations in 18 states okay and we're adding more all the time so to muddy the water a little bit we will underwrite in all 50 states and that's typically what we do but because the demand has been so huge and continues to grow we are offering full Loan originations in 18 states are you are you are you an mllo in those States or yes uh yeah me and an affiliate so so you using you actually have an M nmls license to do that then correct yes sir got it so you are actually the lender of record on those transactions we would do an assignment that closing to the seller correct Goa yeah fascinating all right good to know yeah and we're adding more States all the time so so one last one question on when you do that then are you following traditional for you to do that that does it have to check all the boxes as a Traditional Bank lender would have Rel it to the DTI credit score uh well there understand that almost everything 99% or better of all seller finance notes are non-qm uh and so we're following standard non-qm uh origination and underwriting uh principles so are they more flexible than Fanny and Freddy who's selling to mortgage back Securities that are very risk ofers absolutely these aren't qm loans but with that said they're still compliant they're still legal uh and so yes it's not the wild west we have a metric that we follow to make sure that you guys are safe with the paper that we're helping you generate um but thank God it's a lot more relaxed than what Fanny and Freddy lenders are having to go through right which is why if if you're under a 720 now they just uh draw a line in the sand and they only pick their low hanging fruit and they leave the rest for cell Finance so it's 720 it's up to 720 now well that seems to be you know because think about it I mean if you were trying to meet the Wall Street mortgage back security uh you know that's a pretty high bar and so the easiest way to do it is just draw a line in the sand and don't even mess with anybody that won't easily fit over that bar every time nice so you you're you know some people are asking some general questions um be sure to reach out to call the underwriter where he's licensing all that good stuff so I would definitely reach out the max give him a yell whatever go on the website um all under writer.com yeah yeah you can and you can if you guys aren't in our creative dealmaker you know join our Jo join the Facebook group that's probably the best place to start and it's just creative if you go to groups and Facebook it's just under creative dealmaker and you can probably put something in the in the show notes Dave or whatever absolutely we'll put in the YouTube channel Facebook put it all on there and you reach out to Eric and and we run this webinar on different topics every couple weeks every two weeks or so um so yeah connect with all of us we're all connecting each other we're gonna make each other's life a whole lot easier um go ahead Nathan we'll let you go ahead yeah sure so we've gone overtime so we'll just we like to kind of finish off with this and get your crystal ball where do you think the Market's going but we're are overtime so let's try to keep it concise if we can just for people listening in where do you Nick where do you see the market going in the next six months well I think from from the ability to create to create opportunities for homeowners that can't get Bank financing is is only going to get bigger the seller carry Market's gone from 20 million or excuse me 20 billion to almost 30 billion in a very short period of time and and the the the average dollar value of these seller carries are you know these properties are over $250,000 now it's not like back in the day when it was a bunch of crappy houses that a bank wouldn't put produce financing on so it's just an easier path for most to do but it's also a dangerous path if you don't integrate best business practices and use a transaction coordinator knows how to you do this an underwriter that knows how to do it or a serer uh you can really get yourself into a pickle I don't necessarily mean legally but I'm talking about from from EV valuation standpoint because it'll make a huge difference when people like Dave and Nathan and and even ourselves go to look at P purchasing that not yeah absolutely and I agree I think I think there's no slowing down of the seller finance I think that we're gonna see more and more and more of that yeah so learn how to sell off mortgage yes we want to buy as much as you guys can produce let's put it that way I know Nick's doing it too but you want to buy quality stuff right you don't want to buy a bunch of crap yeah n we don't get in involved with cuz you know it's spotty but if it's a clean non qm where it's like something stupid we have no problem buying nqm which is non-qualified mortgages for those who don't know that and I I I probably buy more than Dave I'm a little bit more risk tolerant and I'll look at that kind of stuff as well nice all right we're gonna tune off to the uh from the social medias we're g to finish up with Nick appreciate you Nick jumping on and do everything we all do together and uh hopefully we'll be doing more business with each other in the near future in 2023 great awesome thanks guys thanks a lot you can go into this and understanding the 8020 that we're talking about and then you still get that monthly cash flow and then sell that note off so you can get some cash coming in so that's another way of doing it and you're using your end buyers Capital to put down on the property so you're making money in a front end you're also you can structure the note like we talked about the 8020 sell that note off and then you still yourself can still get multicash flow coming [Music] in welcome again Dave puts from jkp Holdings longside me Mr Nathan Turner how are you very good very good too so I'm really excited that this week we just did a video last week and we're doing a video this week so if you missed our last week video which was regarding hypothecation versus Note partials for both buyers and note sellers yeah definitely tune in to that um our podcast how's your week been turning out for you Nathan it's been good been good raising some money buying some notes yeah that's what it's all about yeah uh in our share in our pre call what we actually going on is I'm actually buying my first hypothecation hopefully today working some stuff out um and we're going to see how it goes it's been a little bumpy in the beginning but I'm really excited about it and I'll share more about that as we move forward um and uh I'm sure that you guys will learn a lot about that deal as well as I have and if you've done those kind of deals we'd love for you to kind of put in the uh chat box and whatnot um yes this recording will be recorded uh it will be on live it will be on Youtube it'll be on LinkedIn everything possible and everything else so so you're buying buying notes what are you buying right now what are you looking at so I just got a tape of uh actually I'll share with you later if you're interested but I've got uh some loans uh a whole bunch of seller finance loans mostly Bridge lending L loans so they're shortterm with payoff after 12 months all in Georgia which is already kind of a scary thing for us however they're all too uh because Bridge loans they're all to companies so that circumvents a whole bunch of the things that we're trying to avoid all the time and trying to work around so interesting yeah yeah so I got I've got a tape of those that I'm looking at and then um some other solid Finance notes uh in North Carolina that guy that I met at directed IA Summit a couple weeks ago that I was at so really interesting stuff there man there seller financing you know it's been around forever and ever and you and I have been around notes for long enough we've dealt with institutional for the longest time we've been focusing on uh seller finance the last year or so uh and the more we get into it the more I realize that there's just a ton out there and I think more recently I would say in the last 12 months there's been a an upsurge of people that are doing it as a business rather than just the Mom and Pops that have been around for beon and we when we first got into this we thought it was the Mom and Pops were focused on and we weren't sure about this stuff but we're finding out rather quickly is that there's a lot of people doing this right and wrong and that we want to take advantage of that as soon as possible right and I think one of the best ways we can do is to understand that side of it and we've been doing on a mission for 2023 is Bridging the Gap between the seller finance investors and creat haers and rap note people that are joining our calls right now and US note buyers yeah because this bridge I think will give us plenty of inventory moving forward for the near future yeah we we can do a ton of business together um I I love the seller finance people and I've done that in the past I really appreciate the hustle and I'm more than happy to let them do the hustling yeah I'm more than happy to cash them out so they can turn around and do it again absolutely I think for most people they they don't realize why each side needs each other um and benefits from each other right you go out there as a seller finance Creator go find the house sub two rap it whatever you're going to do and now we're going to cash you out right and what we talked about last week with hypothecs we're actually giving you a loan right we're actually a loan against your your note and give you money where you're going to handle the whole situation we're not take anything of it you're just going to keep working with our money and pay on a monthly basis and move forward from there which is similar to partials yeah but you know in your conference we had the DME again I'm G plug it we have the videos on our website DME 2023 take a look at those videos because we had some really good speakers on both sides of this panel giving some ideas and some understanding of what this note world is about on both edges because it's key for everyone yeah yeah one of the goals was to to bring together all the different facets of notes so I there are so many different ways that you can approach notes seller finance residential commercial first seconds I mean there there are dozens of different ways to to approach it yeah uh so that we're trying to do that and bring everyone together and I think we did a pretty good job with that and uh it's great to see all the different areas coming together and and you know talking together and learning from each other just this week we're right the note we're trying to close today hopefully we'll get everything situated but it's really a guy who bought a loan got a has a hard money lender for a short term and needs to cash him out so we're solving his problem by giving him longer term money and he's to keep going he may pay us off early we hope he doesn't but if it does it does and for us it really kind of helps clarify that this world of buying Bank notes at 3 45% we don't need to do that we're not handcuffed to buy these kind of those kind of notes I think it's huge for us yeah it's huge there and there's so many notes out there um we're hoping we're trying to help those that are doing the seller finance to do it properly and correctly and that's that's been a big mission of ours so yeah so you know for those so those who are creating notes um this is for you as well as well as note buyers but we're we're doing is we're becoming that bridge for you guys so you guys can build and create originate secure and better notes not just get money put person on a property and be in a spot where you can lose everything in a matter of a few years so what we've done since January is really connect with the leading people in the space of creative finan and really kind of network with them so that we can actually help them move forward and create notes but also teach their tribe how to do it the best way possible yeah so they can get the most money out of it they can do it legally without having any you know never having to look over the shoulders see who's going to be bringing down all kinds of really heavy penalties um yeah we just we want to help everybody who's doing this do it right and we'll man we can do it yeah we've had the underwriting calls we've had rmlo calls right so if you're curious about if you have an owner occupied in there make sure you hit that so yeah um I'm getting Dave foots from jkp Holdings Nathan from Earnest investing we're two separate companies both no fires looking to bridge you guys up but today's special guest is a guy who we respect a lot we've talked a lot with him is been awesome right we have Mark Monroe who's been a leader in the space of creative financing for only part of his bit life the other part was doing what we do and and partially what he did so Mark I'm really excited to have you come on today and just share with your group as well us about creative owner financing you're on mute there mark there sorry about that thanks thanks uh well thank you gentlemen for having me on I appreciate it um you know we actually met what about a month month and a half ago early June up in Nashville and uh I highly recommend uh anybody listening to go to the next event next year it was a great networking event learned so much but the networking is unbelievable at that event so I'm looking forward to the event next year you guys already have the dates set or not yet yes indeed May 31st June 1st back out in Nashville same place a good location downtown is just a little too distracting we're there to learn first of all we'll have fun at the same time yeah it's only a bus it's a quick bus ride next 20 minutes downtown like uh you know and uh I think you guys had a bust from the hotel that took people right downtown so they wanted to do that but it's convenient right near the airport too so it works out really well so I highly highly highly recommend yes anybody that's looking to get into the note buying you know especially in a sell financing game uh it's going to open the door up for a lot of you guys that are out there originating doing these sell financing in your holding paper but then you have another whole world where you actually can turn around and sell your notes in the beginning a lot of people they come in to doing sell financing they're just structuring the note because they want to acquire it and that's how that's the first leg of what they're trying to accomplish but then what you can do is you can turn around and sell that note and then learn different ways of structuring it because a lot of times you guys are out there structuring it as just as one note but in fact if you want to sell it you structure it as two notes you do like the 80 20 and then you try to get 20 25% down from the seller so when you do that you're creating more value for yourself that we'll have more of a more maybe an in-depth talk about that next year we'll make a note of that yeah all right so I put the the in the comments section the video recording for those people who are curious to see what it's about you can definitely order the recordings from this last web uh this last event uh Mark spoke he was one of the guest speakers which was awesome um this is all notes right all real estate notes we've had some people in there trailers land notes all that kind of field is amazing so we want to make sure that people understand that we're both sides size of the coin here and I want to stress that as much as I can um mark it it's funny most people get into creative financing typically came about it by accident right um how did you get started in creative financing but in real estate in general you've your background is some impressive stuff well I don't know if I ever told you guys what my real what um what uh how I got into this my not my first one I was like 19 years old and I was in a small little town up in Vermont and what happened was I did the Carlton sheets book you know and I went and got these bit signs and like we buy homes I put them up on the telephone poll meanwhile I got in trouble because I didn't know that Mr col was 19 years old I didn't know any better and I put I put about 20 throughout the through the area so this guy called me up goes hey I got this mobile home for sale it's worth 21,000 I want 18 for it I'm like I'm not interested in a mobile home calls me back another week he goes hey you know I got this mobile home so weth 21 I'll let it go for 15,000 I'm like ah I'm really not interested calls me back like a week or two later goes hey give me 12,000 for this mobile home then I'm thinking to myself okay but I started asking questions said do you own the land he goes no I don't own the land I'm like I'm not interested so he calls me back another month goes give me $6,000 for this mobile home it's worth 21,000 now I'm thinking to myself okay now there's a deal but I'm like I kept going to the same routine I'm like why do you got to sell it goes I don't live in it I have lot rent doe I don't have a lot I'm like I'm going to be frank I'm not insur in a mobile home but I'll give you 3,000 for it goes give me 4,000 I go no I'll do $3,000 so he agreed to 3,000 so what I did is um I hung up I said I got to send somebody out do the inspection I got to go get a contract we didn't have the internet so I had to go to like you know Staples you know the you know the store and we had to get the carbon copy you know the the the contract so so I hung up the phone I called the newspaper up I put a uh an ad um mobile home for sale $25,000 with $3,000 down lady called me up and she goes hey we want to look we LED it we liked it so I end up doing a note she gave me $3,000 I took that $3,000 and I end up giving it to the seller and I created a note at like seven and a half or seven and three4 at like seven years so I was 19 years old that was my car payment my insurance payment for like seven years while I was going to school that was my first note deal so anyways so what happened was then at that time um I kind of got out of doing that a little bit I got sucked into the corporate world a little bit and I got into real estate banking at the age of 24 25 I ended up having a mortgage company up into Washington DC about 107 loan officers um so I had that for a few years and that's where I a lot of my clients were investors so I became friends with them I started seeing the different strategies and just over the years I just kind of evolved and really I understand the note world and how to structure it and how to make it where a lot of investors you know they try selling seller financing to Sellers and the sellers usually say no but if you guys if you use your amortization schedule and show the seller how much money they're going to make five seven 10 years down the road um I had one just recently with one of my students the guy it was in North Carolina they tried selling it they couldn't sell it and they're okay they're like all right we want three years and I just didn't feel comfortable because the market is at the peak you know and there's and if the market pulls back a little bit there's no room there three years is just not enough time to give equity and that property be able to refinance it so we did an amortization schedule we sent it over to them we pulled it up I jumped on the phone hey do me a favor pull up the amortization schedule in the beginning it breaks everything down the finance amount the payment the terms you know the rate I said go down to Line 120 that's 10 years yeah how much money in this scenario would you collected she said it was like $86,000 so and then there's a balloon over to the right of that intiation how much money is that left she said that dollar said add those numbers together because she added the two numbers together and it was a really and I said how much is that and it's a large amount much more than she's selling it I said how much you sell in the house for she says whatever I say subtract it so you're making an extra $129,000 becoming the bank over 10 years yeah amazing it's powerful it's really powerful and if you can hang on to it of it yeah yeah and and not only do you make more money in the end but then you've got regular cash flow in the meantime yeah that's pretty and you have no tenants and you have no no tenants no toilets no turnovers no any of that problem I mean that's the the being the bank is so powerful and if you L sat there and you're able to raise the money and do that with borrowed money at six s% look what happens then your return is astronomical it's ridiculous so you know more this creative financing world is really interesting but there's ways to do it wrong what are some of most common pitfalls your tribe sees that you see from those who are getting started or are the most common questions you're seeing with those people well I don't the questions are like how do you do it like and that's where everybody's learning like hey I got a deal the sellers open sell financing I don't know how to do it and most people are just saying hey this is how you do it with the contract and this is how you do the transaction however and even people giving advice out there are not even aware of if you're putting a buyer into the property that's going to be Homestead living it as a primary residence there's a ton of consumer protection regulations on a federal and state level and that's where a lot of people go wrong and they don't even understand it and they don't even realize it it's we've been for the last few months us we've been out there promoting it now start people are starting to kind of see because I am starting to see people asking questions about it um so just make sure like if you're doing a seller financing and if you're going to your extra strategy is you're going to put an and buyer in that property and you're trying to wrap it make sure if it's a homestead buyer that you totally truly understand the regulations because um I've actually I remember a few years actually several years back somebody was doing this and actually went to jail but he was doing it predatory he was doing it on purpose real quick let's get some definitions let's get some definitions what's homestead mean for those people who may not know what home dead means you're living at that's your home property you're going to be living as your home property and you can get some like Florida we get a tax Discount Advantage if you're Homestead I don't know is it the same way up in New Jersey uh we don't have that Advantage Jersey likes getting their tax money so we don't Homestead we have that so in Florida we're protected if you're Homestead um you get a lower tax break and in Florida also if you ever get sued or you accidentally get they can't come after your property in Florida other states they could possibly do that but Homestead is main when if you're selling a property they're going to be living in a property as a primary residence and that's where there's a lot of consumer protection regulations to protect that consumer because technically if you're doing this a full-time you are considered a originator you're originating loans and that's bring you whenever you're talking about APR uh Finance amount that's when you're kind of opening yourself up to the whole uh regulations of financing now you can sell it off to another investor that's not living as a as a primary residence and then you're exempt from those consumer protection reg like the do Frank act that's just one of them the Safe Act these are federal but then you also have state level um what was happening um besides the whole collapse a lot of small and pop investors are doing the same thing when everything collaps they're putting people into the homes not checking their income and seeing they can qualify and we actually seen a couple cases where people investors were being you know part of my language scem bags where taking people's large 30 40 $50,000 down payment knowing they couldn't qualify and then turn around and for close on him and get them out the property he kept doing this over and over and uh actually the the Attorney General stepped in and the guy actually went to jail because um he was just a predatory lender at that point so a couple of important points here so the first thing you said back a minute or so ago is um there's more to it than just the paperwork so the paperwork it like there's there's a way to do that these are the documents you use this is the process you do that's part A Part B is actual qualifying and then we're talking about the Safe Act and and all those kind of things and then it's state specific so in Florida you've got Homestead in Texas you've got Homestead in New Jersey you don't you know and there and you so you have to know State specific it's vitally important that you understand what the rules are federally and Statewide and which state has which rules and how do you abide by those so it's the process is one thing and that's the easy part the paperwork that's there's nothing to that and a regular attorney general attorney is not going to be the person you need to speak to you need to speak to a specialist exactly that understands creative financing writing a mortgage and a note or a land contract and a note right um Mark when you're doing a lot of these ordinary financing are you creating land contracts obviously in Tex don't do land contracts but are you creating land contracts most time or are you creating mortgages um well I want to go back one second so all the stuff that we're just talking about about learning don't let that scare you guys you know because we threw a lot of stuff at you and I might like whoa wait a minute yeah there's a lot of groups and even these guys you can reach out to people that are like note buyers and experts that will give you some advice and point you in the right direction so don't let that freak you out so if you're doing one like that and you're like oh my God it's too you I don't want to go to jail don't worry about it because it's very very profitable just some proper guidance and there's a lot of people here that will help you out so one more thing to add to that is if you've already done some seller finance deals and they're not done correctly almost always like it's pretty much everything is fixable so even if you you're hearing this and you're going oh shoot I didn't do that I didn't do this I I did it wrong it's fixable almost everything is fixable so so don't sweat too much about it but just realize there is a right way to do it right and it's going to be cost so when you do the owner financing and there's a person living in the home do Frank safe F come to play you have to make sure that borrower has the ability to repay not just a checkbook that wres you a $10,000 check and you walk away right the idea is to make sure they have the abillity repay and it has to be if youve done more than three originated by someone who is an rmlo license in that state specific most of the time so Texas we had Sarah on from Texas there's people Nationwide uh that we could recommend to you guys to get that set up so we can buy it if we don't we're going have to spend time money and energy to get that loan corrected so yeah I mean that's the first part of and also yeah also if you're doing assignments and you and you think you don't you're not responsible be very very careful the North Carolina is actually looking at people wholesalers assigning seller financing deals you're the one technically originating that note because you're the one structuring it so they're looking at it closely and they're they're also looking at assignment fees possibly being rolled into the APR because all upfront fees are considered rolled it in APR and then you have user laws so just kind of be careful that and again I'm not trying to scare you just want to inform yourself that's all I'm saying you know that type of thing so usury laws for those who don't know usury laws what the max APR or interest rate you can give to a borrower right business to consumer that the that the state allows each state has different Usery laws look your local state for now know about that and that come to play with us right and I'm going to to switch for a second a few note buyers probably going when are you going to get to us and understand what we want so for you guys who are creating these notes and you're doing it and learning correctly from people like Mark what we recommend is make sure you write a note that's not only legal right that we can buy that's fore closable mean legal that I can go through foreclosure a judge won't kick it back and I won't have a problem on the flip side we want to make sure that you do that but the paper work in the note numbers the five numbers that come into play right is your original balance your interest rate your monthly payment which is your principal and interest tax Insurance are excluded from that right your term and your balloon right obviously five years you can't have a balloon but then a term right are you writing 360 months are you writing 240 now even if you're doing an 8020 loan the way we have a chart that shows you the best way to do it is the lowest term you can do and the highest interest by law is the best way to get the best price from us so if your orig notes at 6% I encourage you not to do that because you're not going to be able to resell it right and the borrower you want to understand the borrower can't literally go get to a loan from A bank typically so don't undermine the bank where they're giving out seven you're giving out six Mark what do you typically your interest rate in your loans when you create them what do they typically have I think for me I have to I take it a little bit step further because when I'm writing when I'm structuring a deal I'm also looking at what's the market rent is so I need to make sure that the market rent is in line to what my Muth payment is so I'm trying to get the max as me much as possible like 9% 10 whatever it may be um however if the payment is going to be out of whack I'm not going to be able to move that property so you have to modify and play with your numbers a little bit maybe lower the monthly maybe lower the amount so that's kind of how I look at it so it's very very tricky um if that makes sense is that kind of make sense I'm saying would you ever write a note at 6% um I hate to say it but I have because it was the only way the deal was gonna but I knew I wasn't G to sell that note you know if I'm gonna sell it if I'm gonna sell it yes however I had to do it at that rate because the monthly payments didn't match so like for example like Jackson bill is an a market where if you're doing seller financing the house prices went up so much and the market rents didn't go up enough to cover that and that's the problem so it's a market by market so because the market rents didn't go up and the new prices of the new homes you're almost as an investor there's not enough cash flow to be able to cover that if that kind of makes sense so because of that I had to go a little bit lower actually I had to go down to like five and a half to make that deal work I know so that that particular um buyer I mean you can't get a rate at five and a half nowadays yeah you know it's impossible that's a good so that's the only reason why I did that it's just to kind of make that numbers the numbers were but I'm still cash flowing because the underlying debt that I have on that one because I we did a RP was at uh three and a quarter rate so I had I had enough cash flow spread there and um because um I also shorten down the amortization schedule a little bit to kind of make sure my numbers work so there's a lot of like playing around with numbers but if I'm selling a note yeah if I'm selling a note there's no way I'm going to make sure what the premium is and that's why you know we talked in the beginning of this you know when you're doing the 8020 um you can do that and make sure if you plan on selling that note in the secondary Market going into it you kind of know where your rate needs to be to be able to sell that into the secondary Market perfect so so we we've kind of talked about it a little bit um there's education involved here so make sure you learn the rules and again it's not rocket science it's not you know we're pretty regular people believe it or not I know we sound like we're pretty smart but reality is you know we're not yeah we've just learned through experience and and through doing a whole bunch of these deals over time and we're more than happy to share how to do that because there's room for everybody so come learn we did a question uh linkedin's not feeding in through our our system here but uh R asked a question any thoughts about it 10 lending and investing in these notes uh it and I in you know what's your thoughts about this idea of having it 10 borrowers um and lending on this kind of money that way any thoughts or Curiosities or individual conversation for that well let me ask you guys that would you guys buy something like that the challenge again for me is at some point I'm going to want to resell this and well maybe if I'm buying for myself and I'm going to hang on to it I have zero problem with that none H if it's a note that I know like if I'm buying it for myself no problem if I'm buying it in my fund that's a problem because I'm gonna have to resell that at some point uh and that's gonna that's gonna mess things up y so so let's talk about the fact rap notes you mentioned that for those people who don't know what that is what is a wrap note and where does it come from okay actually I'm doing one right now um so I'm actually what I wish I had the numbers let's say um trying to remember if I remember the numbers so what what you're doing is let's just take some runball just run numbers let's say it's I'm selling it for $200,000 my to my end buyer $200,000 no okay but they have an underlying lean with like say Bank of America whoever Chase or whatever it may be and say it's like at $150,000 okay then what I want to do is there's $50,000 of equity there me as the investor that's where my profit is so then what I'm doing is I'm taking the $100,000 note or $150,000 note with Bank of America and then I'm creating my $50,000 difference putting it in there and then mapping both notes all into one so my end buyer's note is $200,000 so what happens is um once that's done they send the payment directly to the serer and then the serer will dispur the funds to the proper parties like the mortgage in the first position and then any profit to me and any tax Insurance that's also included in the monthly payments so that's kind of how I the the wraps of the notes I'm actually doing one right now where I'm buying the property um and I'm turning on I'm tacking on uh $79,000 on that particular one because we had to go and do a little bit of work and then we're wrapping it to our end buyer and usually you can sell um you know whatever the ARB is after repair value you can usually sell it above the market value a little bit so you can get a premium on it because you're structuring it where they can't go through your traditional uh bank to get the financing let's back up a yeah go ahead go ahead I said What's the total debt on that deal What's the total County Line lean debt on that deal yeah so they had to put um I actually sold that I'm just using that one so the what was the online number the online number was 150 you said yeah for the first mortgage let's say Bank of America and then you WRA a $200,000 wrap note so the total we had this comption yesterday what is that total debt is it 200 plus the 150 or is it 200 total so is that 50 Grand seing like a secondary or a second note on the property lean it's it yeah so it would be second but they're wrapping both into one so it's creating that one note yeah yeah Mark and I talked earlier this week and so it's it's it's not your if I'm gonna buy that note I'm not necessarily in first but I'm not really in second either so it's kind of like I'm I'm like one and a half wild Lish but you would be you would be the one because what happens is in this scenario you would because you have that note you would keep paying the first mortgage the hund the mortgage right but you're for closing on with the the buyer the borrower you're for closing but your F that 150,000 or that mortgage and you're going to keep paying that so that and then you can turn around and resell the property again so you're taking a property back because you're rap not but meanwhile that W of the 150,000 of Bank of mar you're still paying that so they're still getting money and the reason why you want to do that is like you may may have a two and a half 3% underlying debt so you're you're going out there not buyers you're borrowing money what 8 10% when you have a debt already in place at 3% or whatever and it can be paid off sooner so that's the advantage of that's how that would work now you do have the underlying risk of like What's called the do on sales Clause um however that's very rare that that has happened but you should be aware of that um where the lender could actually uh call the note doe um because um for whatever reason usually they don't do that unless the payment is um not being made now or if it's a credit union sometimes Credit Unions may do it um but very the big boys they don't care they just want um especially nowadays the banks and stuff um they don't care long that payments do because with the new regulations every time there's an um a delinquent they have to put what is it like two or three dollar for every dollar aside um on that so so they they just want those payments coming in because let's say it's a $200,000 blink with no then they have to put an extra up to $600,000 aside on that I don't know if that's exactly the numbers but it's a roughly about that um so anyways so we have some questions coming in uh and I'm gonna read them since they're on LinkedIn what are some of your thoughts on giving seller mortgage while purchasing power of the dollars declining aren't you getting paid in future dollars at today's rate but value is reducing we not better uh we're not better of borrowing as opposed to lending I'm not sure exactly if we understand that question R if you can kind of clarify a little bit more uh would the lender not start the Foreclosure as they're prohibited in second so I guess the question is can when you say lender Rish are you talking about the underlying subject two original lender or are you saying is the rap note the rap note can foreclose they can still foreclose if that borrower is stop paying um you can do that right it's still looked at the lean on the property and you're secured by that situation so we're talking recently about the yeah we're talking recently about the the partials and uh hypothecation is you could go ahead and buy that WAP note from you right especially if if you got it with Equity if you're into that deal for 200 but you're into the property for maybe a 100 Grand you could sell me that note for 150 and you wrote it at 10% interest rate we could get a really nice discount and make sense for both of us your money out another way of doing is buying a partial where you can buy 60 months of payments right and then I take ownership of a note um last week we talked about hypothecation which I think is probably be the best way of doing it where we literally loan you money on that first or second and we discharge your industry and we're protected by the security of that note so that if you go bad as my borrower I get your note and if I bought that note that's worth 200,000 and I give you 100 Grand right and I'm making G payments and you default guess what I get in my hands a $200,000 note right so hypothecation I'm not responsible for handling the note you as the seller as the lender original lender gets it can maintain it if it goes bad you can transfer it to a different note so hypothecation is actually a great way for rap note people who own rap notes to literally give get some money off their books as well as continue to buy more as long as you keep making payments of us we're becoming your bank and if you have good at equity and you wrote numbers well your interest rate's high enough and your term is good you can make a killing and we can do this over and over over again again remember me and Nathan are two different companies we will buy as much as you have if the numbers work out well and one of the key things for you guys is LTV it's not a killer for us we're more interested in our yield so those who are curious that we're interested in our yield numbers yeah yeah so if you have question about that please put in the chat and we'll do our best to answer um because I know we have different people on right now people in the seller finance create owner finance world uh part of Mark's group listening our group as well as a LinkedIn and I think Twitter's on as well so um this will be recorded put on YouTube so Mark when you do these kind of things um for those are curious where you find your borrowers where you find your properties are you doing mailers yeah how are you sourcing mailers is a good way yeah mailers definitely could work um I don't personally but I have some of my students they do some mailers um what they're doing is they're pulling um some data um you know people that have been owning there's so many different ways like I like to buy sell or financing for um people that are originally been investors that've owned a home for like 15 plus years um Mom and Pops where um they're they like that passive income they don't want to get hit with capital gains so they're willing to carry that note um that's kind of what I like to do and then I also when I'm talking to those people I said you know down the road you can actually sell your note as well so that is another angle you can kind of go in there like you know if you're buying a property yourself and you want to do seller financing you can have them do seller financing for you and then they could turn around and sell that note if they want some cash out of it so that is another um approach um but for me I have a lot of uh referrals um I have about got over 600 bird dogs that feed me deals I work a lot with Realtors as well I work with a lot of other investors um I just built up a big referral network over but also right now like I'm teaching my students to go into systems like propstream or any of those and look for people that um just did an FHA or VA loan like with them the last year or two and they're selling it there's not going to be any Equity there because those are 100% financing so we can buy those uh subject to the existing mortgage or uh an agreement for deed a contract for deed so so that's kind of where I'm finding a lot of our people right there so there's a lot of different ways um a lot of times people come in like where do I go if you take a step back and you start networking with people and start listening you'll start to understand what paths to kind of kind go through try to find these particular sellers do you have do you have specific areas that you like to concentrate in different states that you like or ones you avoid um I will look at every state my exra strategy determine on what state it is okay um like we have one right now in New York where one of my students you know he wants an exent release option I'm like this comes back you know because of the landlord tenant laws versus I told him the best bet might have been um an agreement for deed or land contract um but because of the person doesn't because you have to do a double closing on that you're buying it from the seller then you're turnning on rapping it so there's not a lot of capital they have to come out of capital quite a bit so that's kind of why they're doing a Le off route because it's less money to get from your end buyer so but usually in those type of states where they're not landlord friendly I'm definitely looking at an ex having a seller financing strategy because at that time you're you're just structuring it putting it together and then and they actually like it because they're they're homeowners you know they take care of it's a different different type of person they take care of the property a lot more if they know it's their home yeah yeah sorry about the echo guys so I wanted to into the 8020 thing you talked about briefly is that this 8020 what is 8020 know and what does it mean for us no buyers and note sellers why create a20 what's the benefit of it and what's it look like okay well let's use that scenario of the $200,000 note that we talked about let's kind of go down that path let's just use that one for example so I am the investor I'm actually going to sell that property for $220,000 okay I'm gonna get $20,000 down from my buyer you know up front so they have some meet in the game if not more um it actually could be more than that that's only 10% so 15 20% you can get up to 30 $40,000 down so you want to get a large down payment and then the remaining balance say the finance amount is 200,000 well what they could do is they can structure that where 80% of that is what is that the numbers um 80% would be the first position and that's where you can set it up going to win yep oh I'm sorry 160 so 80% of 200 160 and then the other 20 would be 40,000 yep exactly so let's so what we would do is take the 160 put that in first position set it up the right way structure it so in a away if you want to sell that note and this is a uh you can sell that note and then meanwhile the remaining $440,000 you hold on to that and then that's what you get your passive income coming in so that's another way of structuring that so it's a win for everybody um and then what happens is the serer collects the monthly monthly for both of them combined and then they go ahead and disperse it all out they just follow your instructions let's take a second on that right me and Nathan got this learning more and more about this from you guys and we were shocked to find out that some people out there who creating these notes rap or self originated are using different ways to service your notes why do you use a serer and what's for those who are not doing it what's your kind of a sales pitch to start doing it with a servicer well some people use apartments.com yeah because you supposed to do reports you know it just it's a it's a huge mess um you well first of all yes there's like a 30 to $40 fee depending on who you use but what you do is you if you're sending a note up the correct way you just roll that into your note and have your buyer pay for that so you're not paying for it do you hear that buyers no buyers did you just hear that you guys get that did you get that let's repeat that again what can you do with the servicing fee in creative financing what was that bar what can you do yeah go what was that again for no buers you put it into the note the servicing fee so then they will be responsible for paying it not you the borrower pay servicing fee so those are buying notes and youve been discounting the note because the servicing fee every month if you're buying creative financing notes and it's written the way Mark does it you're not paying it you're actually going be able to buy it for actually more money but you're not subtracting that monthly fee that's awesome we've never seen that buying bank that's that's really great yeah so keep going with that then they do all the reports yeah yeah and they handle all the reporting the taxes I mean they handle all that stuff so and it's just so much EAS and then if the people are not paying they're the ones calling it their collection department you don't have to worry about it yeah so we had a question from Kendrick was uh looking to create notes with burndale landlords great method what's a good message to craft for marketing to burn down burn out landlords tired landlords is that what she's saying yeah B burn down landlords what is a good marketing to say Hey listen aren't you tired of landlording do you want to sell it the asset and sell or Finance it I presume that's what they're meeting yeah so you wanna um yeah you can just say hey you're looking to sell your property um you know just a nice little marketing piece um a mailer um reach out to Yellow letter.com um yellow letter they have uh a lot of great templates already set up for seller financing so you can reach out to them they have a lot of examples but uh if you're looking to do it yourself just saying hey um you know you know make sure they're 15 years if you're looking to sell your property um you know sell it you know you like that cash flow so you don't get hit capital gains you know um you know just craft something on that lines to kind of make it intriguing so because the most landlords and that's why I love working with landlords or other investors because they understand the game and the other reason why I like people that own it for 15 plus years they're not so greedy they're leaving some meat on the bone because um they've already built up their empire their Capital they just want to sit back and relax now what I've noticed here if it's like less than 10 years especially five years those investors already tooken all the meat off the bone so they there's nothing there it's very challenging to do those so um and then they're going to they're willing to do solell financing but there's no monthly cash flow so if something goes bad and you need to do repairs you're you're a little bit of a buy there so that's what I've seen that's why I like 15 plus years they've own it for a long time they like that monthly cash flow but they're tired they don't want to do any property so and then the other thing is you know have them save your information because they may not be open right now but two years three years guess who they're going to call if you're staying in touch and follow up with them every so often so just to clarify real quick and I'll go continue with the questions here is when he says five or 10 or 15 that's how many years into the mortgage that person is obviously the more years you're into it the more you're pay down right um so he said Kick the Can down Kick the Can of taxes down the road yeah so from a rental property to annuity I like that one a little pitch line from rental Prof portfolio to annuity and a lot of people who've been landlords are tired of being landlords right we I've been a landlord I'm sure all of us been landlords and I I unless I'm really really really good return it's not fun right that's what we got from rentals to buy notes um so we buy notes all the time because I don't want to be a landlord again if I'm defaulted because I'm in a great position okay I was a landlord on one property for three two three years something like that and it would I came to realize very very quickly what I liked is the cash flow what I didn't like was everything else there is not any other piece of that that I enjoyed it was just the cash flow so then when I figured out notes it's like okay so it's the cash flow the part that I liked with none of the other stuff I'm in yeah I'm in 100% that's the same thing yeah that's exactly that's the same thing like I'll buy it through sell financing and I like to sell it through seller financing and create the Arbitrage and stay in the middle and get that cash flow yeah y yeah but as much as possible I don't want to own the house if I can ever help it I never want to be a homeowner except for my own home that's fine nice uh first rental was had all windows shot out Ah that's not a good uh first rental that's for sure um that's I have one yeah yeah we all have hard stor so I'm gonna tell you a line little trick those people who are looking to talk to landlords either for note buying raising capital or assets go to local Ras you're going to find a landlord talk to them like you've been a landlord tell them all the problems and kind of relate to them get get on the you know just share War horror stories if you have to make up one or two that's fine just get on their same page and what they're going to do is say well what' you do you say listen I used to do it I'm done doing it and they'll I say wait wait you done what' you do do you are you out of real estate no no much easier now I'm actually in the the notes game and you're G to find a lot of these landlords turning their heads going what and you're G to get a lot of attention at this R this is how I started doing raising Capital talking to R and just mentioning that I'm a you know ex landlord and tired it and I moved on I moved past it I lost the weight of being a landlord and I think that really kind of energized them to understand hey I want to know more about this and hey I got capital I can sell my properties if I need to and get more into this stuff and raise Capital um so we want to make sure you stress the fact that you can get capital from these people but also the property you can do both because this person is interested in learning about what you do well and how you got out of this game right so Mark what are the other things we want to make sure is that for those who are looking to buy these notes they can either buy the first the second buy hypothecation rentals you know you guys love cash because sometimes you run out of it are you guys open to selling to these note buyers who our tribes to say listen we want to sell a note and we're in a good position where we wrote a 10 11% interest note not a three or four like the banks did and I'm able to sell this 11% interest rate at a discount and anyone who knows the math on that says holy goodness that's amazing because I can buy a 11% note at a discount where we're trying to fight over 8% notes at par yeah yeah so Mark are you you and your tribe you know people who follow you are interested in probably selling part of it the whole thing or you hypothecation because cash is probably your biggest funnel biggest struggle Point yeah so what I see out there cu the people that are in like my group or whatever the people I really kind of talk to are people that are kind of somewhat new so what they're doing and it makes sense they should take it down because what you're saying they could sell the note and and make money that way but what a lot of these are doing is they're locking them up and then they're just doing assignments and getting that cash because you are correct as an investor you're always you know you're always putting your Capital to work and then your capital is tied up into an asset so you always need that balancing act so so what you're saying what Dave is saying is instead of always doing assignment there David so just to summarize some of stuff right we want to make sure that you guys are doing it right make sure your paperwork is put together right um getting Echo not sure why but um make sure your paperwork's right make sure you're if you're doing owner finance notes make sure your collateral is written up correctly um if you're doing land contracts make sure it's state specific make sure that the federal law is there make sure you make the abillity to repay is there um you know and all that good stuff uh quick question was sorry coming in late 8020 sell on the first and keeping the back end meaning if you're gonna you can keep the first or you can keep the second sell both or either one but most the time you sell the first lean hold the second lean at 10 12% and you're going get cash flow while also being able to get some money up front so that's what you mean by 820 cash flow so what you want to do is make sure you rate this correctly make sure the borrow has a AB ility to repay and then make sure you write with an rml um we had it turning on a couple weeks ago uh who talked about they're trying to increase the number from three to 24 we'll see if that passes um and then make sure you have all that in place make sure you write these loans at a good number no longer six 7% get as high as you can understand the borrower can only afford what they can afford so make sure you keep that in mind um make sure the interest R is high enough the terms low enough get that created that you can either sell a partial the whole thing hypothecation and then go do it again like Nathan started off saying do what you do best find the assets get them created and then you can sell them off and recash out recash out recash out and we're here for that uh I guess the burn method in creative financing yeah yeah we are we're the refinancers yes so we can either buy out and take the note off of you we can give you a loan we can do both these things they are fascinating to you guys uh as rap notes or originating just make sure you're originating correctly talk to a local attorney um and and make sure you're doing it right Mark when you got first got started in this what was some of the first stumbling blocks you had lack of capital is one of the first things when you first start out and then probably like the contracts like you know how do I do it you know that's probably was one of the first type of things when you first start out um in real estate so that's why you know nowadays especially with the Internet it's so much easier we had to go to Ras back when we were first getting into it we didn't have all we couldn't jump in network like this you're one one of you guys in Canada New Jersey I'm in here in Buon Florida so it's so much easier back then we actually had to drive 45 minutes go in there and just kind of network with a small well some of groups were good um and just kind of learn that way which I did it worked you know but um that's probably one of the thing so if that is you're running into whatever you're stuck on um if it's one of the things I just mentioned or something else jump into some of these groups everybody is super super helpful I mean I can't tell you um in today's world um how easy people are there to help people to kind of succeed in real estate I know I was on another podcast a while ago and somebody's like hey what is the number one thing in real estate that surprised you and woke you up and I thought about it because I out other businesses especially investing is that your competitors are actually your partners you know that's how you look at it you end up working together so like in other industry is like God I don't want to tell him anything what I'm doing because blah blah blah but in this you kind of work together so if you have if you don't have the capital or you don't have the resources to kind of understand this stuff go to somebody that's with experience and that's why people are willing to help you because you're bringing value to them and you guys can take deals and work together absolutely quick question before Nathan's final question is Tony Barnes on Facebook asked do you underwrite your loans or do you use a third party to underwrite your loans um if it's going to be a homestead I'm definitely using a third party um 100% now with the new laws that well the bill they're trying to get through because you're allowed to do three a year where you could actually under RIT yourself however you still need to make sure you're qualifying through the DTI it doesn't really the credit doesn't really matter it's making sure they can afford the payment that's the biggest thing so you're not considered predatory lender ability repays yeah yeah y but I always use a a third party I'm never going to do it myself yeah we have a couple on our listing if you ever want to reach out to Mark ourselves um we have call underwriter we have Mark Ross over there uh rm.

us you know those are the people who are living in the home right if this is a tenant a landlord you don't need to do that kind of underwriting kind of stuff I would still make sure that you talk to them make sure the usy law is not applied and this is State specific in certain situation so talk to your local attorneys um Tony hopefully it answered your question um but we want to make sure you guys do this correctly and you work with good people like Mark so that you guys can create more notes and you bring them to us we'll buy them and we'll just cycle going but what's Circle back to the very beginning before Nathan's final question is we want you guys to network with us as much as possible let's bring it home we see everyone back down in Nashville next year so we all can get together in one room and really talk uh big deals happen at our last at the last DME we had deals happen over the weekend signed and funded yes that's exactly what I was open for yeah so I'm really glad about that and and get the videos like Mark is saying everyone is so open and so willing to share so get those videos if you haven't if you haven't already and just learn learn from people who are more than willing to share we're not selling anything We're just trying to help you succeed that's it absolutely um ahead Nathan all right Mark we're always trying to get a sense from from other experts here um see what do you see coming down the pipe uh what's your what's your Chris Ball prediction for housing market where are we going I mean we've been saying since October we're gonna be in a major recession you know what I mean I mean look at look at the stock market and a lot in the first quarter I mean the first yeah the first half of the year so I think because just still we printed so much money there's still a lot of money floating around out there so this is a a weird situation that we're in right now um because I mean think of how much money we printed I mean 80% of all money in circulation has been printed in the last few years think about that that's a lot so we really should be in a recession some some indicators show we're in recession that's why our inflation went up because all that money but I mean it is definitely slowing down um because but the problem is is nobody selling because why would you sell at a 3 and a half% and go into something at 7% so that's why there's no inventory however there's a lot of inventory coming online um with a new Builder so we're definitely going to see it slow down um I kind of like this market right now um because people that can't sell that's where I'm coming in and buying them taking over the debt you know so I would definitely highlight you guys to take a look at the DME uh recordings we had the mortgage Banker Association come in and she actually gave a month of when the mortgage B NB think that this recession is going to actually hit she named a month so that's all by data charts so feel free to take a look at the video and you're going to see some awesome stuff besides just that other things so mark thank you for joining us Friday afternoon you can hang on for the aftercast but I appreciate those who tune in live me we be back we'll probably be a few weeks off we have some things going on and summertime is what it is things yeah so we will be we may be dormant for month of August but feel free to tune in um our links or stuff our webinars on YouTube you can go to our website for it if you have questions reach out if you have notes send them on over all right guys thank you very much for joining us we're going to go uh go off live and we'll talk to everyone soon thank you thank you so really just the the difference between an aralo and the underwriter right so the aralo is actually originating that loan for you on your behalf as a lender the underwriter is just making sure that the buyer has the ability to [Music] [Applause] repay hey everyone Dave puts here from jkp Holdings alongside me Mr Nathan Turner we apologize for a little delay everyone little technical stuff going on here I'm glad we connect for a few minutes um before we get started with all the stuff we wanted to do some quick housekeeping um as you probably may know I'm Dave put from jkp Holdings Nathan Turner from Earnest investing we have a big event coming up Nathan it's a big deal man just a little bit all right so for those who don't know we've been in note Investments to 2010 buying Traditional Bank Loan stuff some little bit of seller finance stuff but we're seeing a big shift and seller financing is becoming the thing and I it's funny for me I actually started doing seller financing so now for me it's kind of coming back full circle where now I'm buying seller finance notes which is what I was trying to do in the beginning I was creating these notes and trying to sell them now I'm the on the other side and I'm I'm trying to buy the ones that people are creating which is pretty cool yeah so it's it's really cool to to have this kind of go first full circle and for those who are saying why would you want to do that what is the advantage of it for us we can't buy 3% paper and for those who've been out there we I put a PLL we put a poll out yesterday about what do you bid on based the upb or whatnot and a lot of people didn't realize interest is a huge factor in what we bid on yeah um and we'll be talking about the DME right how to bid and what we're finding out is people don't don't realize it but with s Finance the interest rate is very attractive yes yeah the higher higher you can set that the easier it is for you to sell it the easier it is for me to buy it we can do a lot of business but you gota you got to write it properly yes and you can write it in a way that makes it more attractive for sale later yeah and when we're buying these paper and people say why do you care well when we go to foreclose we don't want to prom a borrower we don't want you to have a problem with a borrower we want to cash people out for those who are no buyers understand the fact that you're buying 10 11 12% paper times and not five and six% interest so when you're going to buy you're going to get a much better easier return and your actual discount is a lot less which is really attractive yeah so all these things and more we're going to be talking about all this stuff today is the last day people to save money on your DME ticket I know a lot of people have bought already and that's fantastic good I'm glad if you want to pay more I'm actually fine with that I'm just I'm trying to help you out help me help you save some money today is the last day to get $200 off on your ticket and it's also the last day to save money on that hotel block so make sure you get that in today if you bought your ticket but not your hotel yet get the hotel because today's the last day for that that cheaper rate and if you're curious what's about DME has traditionally been a note investing conference for note investors to learn game it's not gonna be that way this year Nathan's running an awesome multifaceted note origination Market conference where people from both sides of the table per se is going to be in attendance and be talking to each other so those who are originating notes and want to get cashed out guess what we're going to be right there with you with checkbook rate rate a deal for you and those are note buyers you'll be sitting next to people out there who have loans who want to sell them and want to get cashed out and willing to sell at a really awesome discount yeah we can here's the cool thing I was just had a conversation with the guy yesterday where he says okay so if I'm G to create a note if I create it with these terms then you would buy that and I said absolutely all day long yes and he's like oh wow you know stars in his eyes dollar signs yes yes yes yes we can do a ton of business together and so we're we're here to help each other I can't wait to meet a whole bunch of these seller finance yeah people that are creating notes and for those of note buyers are saying we had a couple reach out saying Dave your webinar this week is really not for us well we're GNA tell you it's totally is for you right if you are gonna buy a seller finance note it's not the traditional um due diligence process right there's another step to it because if you're buying paper that's not originated correctly you're in deep water why is that the borrower can sue you we're going to go through the legal processes next next webinar on the 26th with attorney right but when you're creating that paper if it's not originated correctly for owner finance property you can get sued so none of us want to get sued right and there's fines there's Leeves and all that stuff we talk legally next time we're talk today talking about what that process is to originate correctly for so buyers you got to make sure that collateral file has the Arma Lo logo and as well as the underwriting there to prove the fact that borrower has the right has the ability to repay and we're going to cover a lot of that today but a DME is all to be having that same conversation in live in person in Nashville yeah so get your tickets last day last day go and get them Diversified morgage expo.com so we're gonna bring in a special guest now so we have a special guest that's GNA be coming on today uh before we bring saton we understand the fact that rmo is very confusing for both no buyers and Originators and a lot of people out there are originating and underwriting without both sides they're doing what we call a checkbook underwriting meaning you have a checkbook you're underwritten and you get the loan that doesn't work right so when we work with people like this we make sure that we help them we're not experts right we're going to help you along that process so we can buy them we have alternative motive here right we want to cash you out refi and let you go buy more and reginate more loans yeah right so when we come to DME be present be ready and if you haven't bought your tickets already make sure uh check out the DME uh if you need a link whatever put in the comments um and whatnot so we already got some comments coming in so we're going to bring on S me uh flip the screen awesome so we have Sarah on today she is an armoo expert at Texas Sarah could you explain first how did you get in the space how' you learn about all this stuff and the just the background of who you are sure um Sarah monz Texas Pride lending um so yes we I started with um with the gurus of the gurus of owner finance um I started um working with two gentlemen that have been doing it for like 20 years and all I did was just sit there in their office and listen listen listen listen and just soaked up I just soaked all the information that I could especially when someone's been in the business for so long you uh you hear and you see you know the historical side of owner finance and um whenever Dodd Frank uh rules and regulations came about everybody started freaking out oh my gosh you know we can't do seller finance anymore and you know you learn that the history of all of of real estate investing is that you always uh try to figure out how you're going to continue going uh abiding by the rules and regulations all these new compliance laws come out all the time it's just keeping up with them and and and uh making them a part of your business so that's what we did that's why they brought me in because I was a licensed loan officer and they said hey you know would you be interested in in originating owner finance NS for us because now we have to do it now it's required so uh so I I came in learned the business um as far as the the owner uh Finance side so um we pretty much developed the rmo you know package or the rml you know what's gonna what's going to satisfy this new law um so um I don't know if anybody's familiar with Grant Camp long time ago he was um you know just very active on um social media doing a lot of webinars teaching people how to do this um very young very young guy he um he he also was one of my mentors but I mean he had 60 homes within you know one year um and it was all you know sub tws and creative financing and ws and so it's not just owner finance right it's all the other stuff that makes it so interesting is um the creative financing behind it all um so that intrigued me lot so that's why I was really focused and really determined to learn all of it every bit and piece um so that's how Texas Pride got created uh was solely for Real Estate Investors that were creating owner finance notes and this was you know good 15 years ago 10 years ago what year so we um what year did you get started with uh we started in 20 yeah 2013 because the law went into effect in 2010 it they created it in 2010 but it didn't go into effect in 2013 so that's when we started yeah and I forgot to add in the housekeeping gu this is recorded this will be on YouTube our podcast um on our website we can actually have it so on jkp Holdings webinars you'll see recording on there as well all this will be recorded and available for the podcast or webinar so yes so let's go back interesting just one real quick so I had learned about dodf Frank I was doing all these seller finance deals and putting you know in Columbus Ohio is a bunch of land contracts and uh and I'd learned about this Dodd Frank thing and I'd heard about it and I knew it was going to be get implemented in 2013 so we started looking around me and my old partner we started looking around for an rmlo we knew that's what we needed we knew that that was what what was required we could not find anybody nobody it was like just they just did not exist knowing that that was the rule and knowing that we couldn't find any anybody we had to we had to shut it down there was no way that we could continue doing it properly and legally so we we abandoned that model which was really too bad it was a great model but we knew that we couldn't do it right so I'm so glad it took a couple years for me to find people like you yeah that knew how to underwrite and how to how to write them properly so that they're done legally so we have to understand the Dodd Frank law came out of the bacle right it literally came out of the problems that were happening back in 05 060708 and the I understand the fact that borrowers were really getting in bad shape because of poor underwriting and whatnot so new rules came out for that reason to protect the borrowers so this entire world is around protecting the borrowers and doing it legitimately Now understand if you are going to try bypassing this stuff and get away with it we feel that they're going to actually make the rules even stricter if it continues to be violated because they want to protect all the people right so those are listening on LinkedIn and Facebook understand that yes could you get away with it I'm sure you could we're not looking to get away with anything we want to be right to the borrowers and we want to do good business right and if you're doing a lot of these notes and creating them do legitimately right now you may lose some borrowers because they don't qualify but they shouldn't qualify then right we're not just screwing people over here so we want make sure we're clear that this law came out to protect Borrowers to do it right absolutely and if you're going to act as a lender then you have to follow all the all the laws that lender that typical lenders do as well you know granted the underwriting guidelines are going to be way different but you still have to follow the the general rules and general laws yeah so when we talk about this stuff you know there's a lot to do with this idea of arm alow with underwriting whatnot and then Sarah put a great PowerPoint together with us um inside of our our our are links there's actually a link if you want to get Sour's information click on the the pin post and that will give you a webinar link just fill out the form and you'll get an automatic email with Sarah's information so to get that that'd be great with that said um when we work on stuff like this we hear a lot about this rmo and it underwriting and Loan originations and Loan these are really words that for no buyers we never really dealt with or heard about and for what we're finding out me and a lot of Originators haven't heard about it either so can you before we get to the PowerPoint can you kind of break down what an aralo is and what an underwriter is I know we got some bunch of questions initially we're GNA ask and then we'll open up for Q&A but what is an rmlo what is under what's the difference between the two sure so the the rmo is originating the loan um so we are we are the loan officer that's going to originate for you I guess more importantly the armo is the mortgage company or the mortgage broker that is going to originate that that loan for you uh to keep you compliant because Dodd Frank does have a licensing requirement so as an investor real estate investor you're not licensed to do loans that's why you hire your rml loan broker to originate that loan on your behalf to satisfy the licensing requirement so that's why you use the aralo piece of it um an under wrer is just looking at someone's income and their debt to their debt to income ratios and figuring out whether they not that they have the ability to repay so the other thing with DOD Frank one of the rules for Dodd Frank is ability to repay so you do need the underwriter to uh review to process the loan and say yes this person does have the ability to repay this loan um so that's the second part of it um with us obviously we do we do all everything we do the armo side we do the underwriting side we provide you with a full complete underwriting package um one of the other rules on Dodd Frank is to also disclose the loan terms to the buyer um so that is very important as well so the buyer knows what what kind of loan they're getting their themselves into right it's all in black and white and it's in writing and so that's another piece of of of the the aralo process um so you know everybody just hears the word rmlo they really don't know what it is and it does stand for Real Estate mortgage loan originator um which is across the board for anybody that's originating loans you know whether it's a bank or a mortgage company or or anything so um for us in specific to what we're talking about is we're originating those private notes owner finance notes um so to keep you compliant since you're not in the business you're not licensed this is why we come in is to help out with to just make sure that you're creating qualified mortgages and the reason to go and I mean the reason to do a qualified mortgage right is to get more bang to get more uh more dollars for your uh for your notes also it's a fact to making sure if you go to foreclosure that you're not going to have a problem and your borrower is not gonna fight it right can argue that that that loan was created incorrectly or illegally yeah and we won't get into the legal side of it just the fact that understand you can be sued by a borrower if you're not like and you're creating these things or if you don't underwrite correctly yes so there's going to be several reasons um so if you don't do if you say no you know what I'm just or my you know there's a lot of attorneys there a lot of child companies out there that are saying uh you don't you know you can go ahead and continue doing seller finance the way you wish uh because it's a you know they don't understand that um uh the that what what's happening with DOD Frank is that they're protecting the consumer so so if the the buyer is purchasing a home as their Homestead that's where it becomes you know that it falls under the dodf Frank rules and regulations so a lot of people don't know that um and so if they're going to buy that that property as their Homestead they're a protected class and um so that's why you have to go through all the different um qualifications for a qualified mortgage is uh number one you know points and fees you can't charge excessive fees you got a Max of 3% uh your loan terms um can't have a negative adoration they got to be under 30 years or less um you know no balloons you know we'll talk more about balloons of you guys we get to that point but you can't do risky features that's the most important thing you don't want you you're you're you want to create a qualified mortgage uh a mortgage that someone is going to actually be able to pay um that's not going to default um you don't want to put risky features in that note um to set them up for failure right understand we're talking about owner occupied homes investor homes don't apply here commercial and whatnot these are trickly for bars for occupying the home you're creating the node for so if you're doing wraps right and you create a note for a borrowers to live in the home you must be underwriting you must be using arow in you can do or three or less you can do your own we encourage you to underwrite still with the licensed person who can do the underwriting part but you need to understand if you're doing this in a business you should be doing this so we have some quick questions I know Nathan has sent over to you as well um where that yeah where you currently licensed to do rll work um so right now it's Texas and Arkansas uh we're definitely going to go into other states Florida Oklahoma um Colorado so we have we already have you know several that we're going to uh put on our list to get started with that um I know you know we've obviously we've we've been here for a long time we've done this for over 10 years um and we get the calls all the time you know I wish you were licensed over here I wish you were and we just we just got so busy in Texas that it was impossible for us to take on other states um but now we are to that growth level where we can say okay now it's time and now we can go expand into a different states and start helping owner finance investors um in different states so definitely reach out to us us and let us know what state you want us to get licensed in and we'll get that process started that's awesome but in the meantime though what we can do we also offer an outof State pack underwriting package so we can still underwrite that file for you um so that if you're going to create this this note um and you want to make sure that your buy your buyers are meeting at least you know the the the Five Points of of the qualified mortgage um we can definitely do that for you we can still provide you with a complete underwriting package um for you to have in your your you know in your files um if you do have to go to foreclosure anything like that at least you did that part right and that's a little bit of a protection there for you I've got one other question just on on terms and licenses and and uh titles I guess another one that we've heard is processor is that the same as an underwriter or is that something different than an underwriter yeah so um a processor is just really just an admin putting together the information um an underwriter needs to be licensed got it also so yeah so the differen is aralo Underwriters have to be licensed uh a loan processor should be by law should be uh licensed as well if they're if they're touching you know a mortgage loan um but yeah so yeah so you can have a processor let's just say you're a real estate investor and you want to have a processor you want to hire your own person to do it you can but you have to have a more company or you have to be licensed your company has to be licensed and then you can hire a processor and underwriter to work under you but the first step is to be licensed okay we hear all these different terms and I'm like okay is that what this does you know it's very confusing and very overwhelming for even us note buyers those who are creating these notes who are following these courses of doing subject twos and wraps I'm sure it's even more confusing because they just want to do real estate right yeah yeah and so you know that's the other thing that's the other thing that I always tell you know when the when uh we actually got a a recent rap law um passed here in Texas that that just added more um you know obstacles to do wraps um and it's just the Texas law here but um so when that happened everybody said you know what this is it I'm getting license okay so they so what happens is they start researching they're like wait a minute it doesn't matter if I get license I still can't do this I mean this is a lot of stuff to know and I don't know all the laws and regulations and you know the 900 pages of DOD Frank so they some of them still got licensed but they still Ed Texas spr to underwrite and process and do the do the you know the backend uh office work of of the origination good okay all right let's dive into I know that there's some comments going through about independent loan processes required to be licensed in most States from soow um and it in some uh select States the independent Underwriters require to be licensed I'm presuming that's similar kind thank you soal for shiming in there um that's awesome um so I'm glad those are joining in here feel free to ask questions um Nathan did you get a chance to review some of the questions we got yeah I'm wondering if we do we do the questions or should we get into Let's do let's do the now I got a PDF from you I'm presuming we're going to run through the PDF is that the is that the best way to do sah or you have this in PowerPoint as well okay oh yeah I mean um yeah I guess I could have done the the power PowerPoint but uh go ahead just do the the the slides that's fine all right all right so right here on this first slide I said safer because the one of the the acts is called The Safe Act yeah so just if anybody's wondering why safe what so it relates to the Safe Act got it got it so we're talking about here is you know sell Finance stuff and the idea of what is qualified to be a qualified mortgage and that's really protecting the borrower of stuff so I'm glad we can discuss that that that feature of it um to make sure people understand what that means and go from there and again as note buyers this is a huge plus huge huge huge uh maybe even a deal breaker so yes yes so if you're looking to get out of your loan for whatever reason I highly encourage you to kind of stay compliant so as you can see a lot of information she's been doing it for a long time um Texas Pride been in Texas for a long time doing all this stuff and most loans that are being originated are in Texas so Texas is the reason we're really focus on Texas ralo at this time I know Ellis asked about armo in California um I have been in touch with some people who can do armas in other states so feel free to come out and talk about this so we went over a little bit that this s I'll let you kind of chime in here can you explain a little bit more about this process sure yes um so um a lot of you know the big question is why us an aralo um so it's been a loss since 2013 so again you know it's it's not a law that just happened yesterday everybody needs to get educated if you're going to be doing this as a business you need to stay compliant as a lender um so that's very important just to do good business um you're going to be you know in the real estate game you're G to uh start selling notes you want to get top dollar for those notes so I mean if you're not going to do it right why do it at all right so um that's number one um and then so secondly the Foreclosure protection right so if you um and we're going to call them the end buyer so the end buyer um is purchasing a house and you know within for 6 months they um stop paying you need to to go to foreclosure court that um that uh judge is going to say well did you originate this correctly um are you licensed did you make sure they had the ability to repay back this loan they're GNA ask you all these questions and if you don't use an armal you're not going to have the proof that you did all the things that you were supposed to um so if that were to happen um you know so what what what an armala does is protect you from that foreclosure um that forclosure courtt when you get in there you can say here you go I have an underwriting package I have this I have that I have all my ducks in row I'm super organized I and doing business correctly and then they'll Grant you the Foreclosure without any issue awesome um so I don't know if we want to go into the the ramifications on uh on that but maybe here in a minute yeah we're actually attorney so those who are coming on 26 we're be doing a followup on the legal part of it like what happens if you don't do these things so let's focus on what the proper origination is but we feel free to kind of divy if you feel needed to switch over awesome so let me scroll down and let you guys yes let's go to why the the whole dodf Frank protection act got started um you know the too big to fail situation in 2008 financial crash crisis um they were giving loans to anybody that had a heartbeat right anybody that had a pulse they were giving loans to so that you know it it it crashed our U our you know our financial system and um and so they don't want that to happen again and so how do they fix that is just to regulate any lender it doesn't matter if you're a bank or a broker or you know a seller finance person that's loaning money um uh I do and just just to add to that um I don't only just work with seller finance uh investors I also work with a lot of people that are offering private financing um so a lot of of uh investors are creating um kind of like a Loan Fund or a hedge fund and they are just loaning money to anybody that wants to go buy a house you know and so um you're acting as a bank so if you're doing that you know this is this is where you need to uh make sure that you're following these roles but real quick question they ask about is it this affect any kind of uh land notes as well does land play play role at all in this okay so that's a great question I get that all the time um so vacant land or vacant Lots um if that person is going to utilize that that vacant lot um as their Homestead residence within the first five years of that note then yes you have to follow these rules and regulations because okay so this is what happens you sell a lot you're like oh you know I can sell it however I don't have to go through an arm low um and then in two years they build a house or they move a permanent mobile home there um and now it's their Homestead and now and and then you have to foreclose well guess what they're going to say wait a minute this is their Homestead why didn't you originate it correctly so just to protect you again you know number one and number two so if you do create a qualified mortgage on that uh vacant lot um a lot of people are selling those those notes right they're they're they're splitting up they they'll go by a 100 acres sure split it all up and then sell those notes and and and do it all over again yeah so we're really let me just add on that yeah go ahead so I'm gonna add that when you're selling notes um you know when you go to a note buyer what do you say oh I have this piece of land over here and what do you what do you give them what do you give them just a three you know three paper document with a promisory note um so with our package you can actually give them a hundred a stack of a you know 100 page uh package that makes you look organized legit and makes you look like somebody I want to do business with right your no buyer is going to be impressed and your no buyer is GNA say bring more I want to do business with you but if you bring a three-page promise there know they're like what is this yeah two weeks ago I got one I got I had two notes there were one page each and I'm like oh my gosh come on that's not gonna fly and there's a lot of things that go into these notes we were talking about in a previous webinar the fact that you must include certain things in this note right the first when the date of the first payment the interest rate your your monthly payment should be separated with your p&i with your monthly principal interest payment separated from the escrow amount that has to be separated and you have to make sure inside the escrow that you're saying to the borrower it was subject to change you we've seen too many papers recently where they merged the Piti principal insur tax and insurance into one payment and they don't put anything about the fact the escro will change or adjust over years if interest goes up so then it get stuck in a balloon we could talk more about that if you want to reach out what that means it just dangerous do you need to write that note clearcut the start date how many what's the term what's the p&i what's the escra what's the full monthly payment what's expectations and everything interest rate everything in there to make sure the borrower is well aware of what's going on even an amortization schedule is is um is almost mandatory too so that the buyer really understands you know the advertisement of the loan yeah yeah you got to have your truth and lending stuff in there like it's a onepage two page three page that it's a guarantee you don't have everything in there that you need to [Laughter] have yeah so it's not just the dodf Frank uh rules it's also the Reser rules the truth and lending rules there's a lot of laws that you have to abide by and so you know definitely seek professional help third party to do that kind of stuff to lead you in the right direction make sure that you're writing good paper so Cindy's got a good question let's say um you say well I use my attorney to to draw everything up is that good enough does that qualify if I just if I have an attorney draw everything up is that good well okay so your attorney's not going to have a loan system that's going to give a loan estimate with the APR so the the one of the other rules is that you have to disclose the a the APO to your buyer um the annual percentage uh you know rate on the on the so your attorney doesn't have a loan system that's going to spit that out for you they're not going to they're not going to have the qualified mortgage report that says hey you you actually created a qualified mortgage and here's the results um and the proof um and your attorney is not going to have uh I mean all I'm I'm thinking all he can do he can legally um originate that loan for you yes they they are legally to able to do that but all you're you're still just going to get your promise that you're note and D to trust you're not going to get all the other um required uh loan disclosures that are required by law on any real estate transaction right um it's not just seller finance but when you're doing a real estate transaction you also have to include all the other um respa disclosures um so I'm not sure if your attorney has those that you know um you know I've seen a lot of attorney um packages over the years and sometimes I'm you know I'm just like I can't believe that this closing package is you know seven pages um so just beware be careful if you are going to have your attorney originate that loan for you on your behalf uh make sure that they're checking all the boxes and that your buyer getting all the disclosures that they're that they're supposed to be getting yeah just to make sure we're we're accurate just a stands for someone asked that question was at stand for the AP o r so yeah that's the annual percentage offer rate so we'll get that well there's another slide on that um here in a minute so we um let's see if we want to go down to that um so this is key we we went over this a little bit before any highlights you want to kind of cover on this before we go the next slide um yes so really just the the difference between an aralo and the underwriter right so the armo is actually originating that loan for you on your behalf as a lender the underwriter is just making sure that the buyer has the ability to repay so I know that there's this big company out there that says call the writer um but all they're doing is just doing what you could probably do yourself and say okay these are your debt this is the buyer's debts and this is their income and do the math right that's all pretty much what they're doing they're GNA just um look at all the U the proof of income that you're providing to them because they don't they don't go out and get that directly from the buyer um and they're just doing pretty much the math for you and calculating it for you I don't think that an underwriter suffice or call the underwriter whatever they provide is not sufficient for uh number one the licensing requirement and number two um you know something that you could probably just do on your own um if you're just really just trying to figure out whether they have the ability to repay or not so it's a big difference yeah so just lot of comments coming through so um I I sent a message to Nathan so um just to kind of feed anything we're trying to feed everything in and we're do our best to answer all the questions um but just understand that if you have additional questions feel free to shoot us an email or click the form it's in the uh the box and we'll get through as much we can today um I know that one of the things we're focusing on here is the borrower right this is all about the borrower make sure they have the abillity to repay make sure the rat's not too high make sure it's a legitimate loan and we're passing all the legal Dodd Frank rulings and stuff like that so um and we have some really great people in the chat going back and forth uh I see Mark I see so how um I see Nick on of course U we're gonna get Mo as much questions as we possibly can um in the process of doing all this stuff um so cool okay yeah we can go to the next slide and try absolutely so I'm all right so ATR before we get there what do ATR stand for again for those who may not know ability to repay ability to repay again folks in the borrower cool thank you much okay so so DOD Frank does not set any kind of specific rule on the DTI because I know that's a huge question for everybody well what DTI are they supposed to be under uh by the way for those who don't know oh sorry loan officer side and just officer the uh yeah APO correct so the if you made a mistake and you did this incorrectly we're going to get to that so bear with us we may be a little longer than an hour we we expected an hour hour and a half but we're going to get to as much as we can so go ahead sorry go ahead it's okay so just to just to touch on the DTI um you verify consider the DTI that they're going to provide uh we do pull credit just and we don't look at credit rep uh scores all we're looking at is the liabilities um and so we take their proof of income we take their liabilities and then we that's how we come up with the DTI um so that's the debt to income ratios so um when we do that you know you get a percentage and so so we just like to stay under 48% DTI again there's no set number it's it's h going to be each Investor's you know whatever they choose to do and how to how to uh set their underwriting guidelines for themselves and for their buyers um but what I like to do is I just kind of go based off of what the um the guidelines are in in you know for FHA or for Freddy Mack you know I just try to follow those I think FHA went all the way up to 50% this past year um so I'm not too familiar with conventional uh the conventional financing but I do like to stay up on um there if there's any changes on bti thresholds um so that we can kind of mirror those those thresholds for you okay let me scroll down here and um again just to and so for the underwriting too it's just really just makes sense underwriting um you know you just need to to make sure that you're looking at everything and um we have a lot of people a lot of our end buyers are cash buyers or self-employed buyers um so a lot of the questions that I get you know what if they get paid cash um so you just really just have to do an analysis uh we'll we'll take six months of their bank statements and we'll average out six months of of whatever they're depositing every month um and come up with that monthly pay uh monthly income for them yeah okay and for those you know idea about the DTI it's all about the borrower so the lower the better you are because then you just have a better quality note um in the eyes of the law so yes so how absolutely um Kevin Cordell also asked a question is that made a comment which is really key that mllo is the only person allowed to discuss with the consumer right they're they're negotiating the loan per se right they're talking to the consumer they're because if you do any kind of conversation with that borrower you're not licensed to have that conversation is that correct that is correct yes so that's why you hire the rmlo is to do those those negotiations with you or disclose those loan terms to the buyer and and you know kind of speak on your behalf right of what your interest rate uh requirements are down payment requirements all of that yeah awesome great so qualify mortgage we have five points we're focused on yep so the qualified mortgage um you know pretty much you're you can't go over your points and fees um so that's going to be loan origination fees uh not a lot of people charge loan origination fees but some do um so you know we just need to be careful to stay under the threshold of 3% or else you're not going to have a qualified mortgage um your loan terms must be 30 years or less so you can't do a 40 40y year advertised loan right um balloon payments um they don't want to see balloon payment terms uh what I suggest in lie of a balloon is uh to do an adjustable rate mortgage so do an arm um you do have to have it fixed for five years that's one of the rules but after five years if you do like a fiveyear arm then you can um a aggressively um increase that interest rate so it it um it you know helps them kind of get encouraged to refinance or pay off the loan that's another Avenue instead of doing a balloon you can do an arm that's good idea um and then the no negative amortization really is just the you know that if you're going to try to do like an interest only type of loan um you're putting that that buyer kind of in a bad position um at the end of the term you know you don't you don't want them to be upside down on their on their on their loan and so uh no risky features on on these lens that you're writing or these these notes that you're writing um and the APO APO I guess I'm sorry average Prime offer rate so um we also just let you know whenever we get your um your transaction and we're going to originate your transaction we check what the that week's AP is um what the primary is and we calculate that for you and we say Okay whether you're good or maybe you're just a little bit over that threshold um so we just make sure that you're under it um in order for you to have a qualified mortgage so um that would be prime rate plus 6 and a half% yeah so if today's prime rate is 7.25 then you're going to add the 6 and a half% to that and that's your max interest rate that you can charge that that end buyer see and I always thought that that was a state specific thing but that's a national that's a national qualification this is National right right right right National so the state specific uh interest rate thresholds those are um when you're getting into like the the the 20% you know interest rates uh when you're going way way above um the these fresh holds here so it's not um I don't think that you can really compare the same thing because we um as professionals you know Originators we're not going to let you get to that Usery rate right okay interesting what's this high cost so that being said the higher price versus the high cost this is where uh today if you go six and a half plus Prime you're you're going to be considered a higher priced uh mortgage if you say Sarah you know I don't care that I'm over that I don't care that I have a qualified mortgage I still want to write this note I want to go as a non-qm okay we can still do that but now you're going over onto the high cost mortgage so if you go over that interest rate threshold of six and a half plus Prime then you're going to be considered a high cost mortgage and um you can still do it and you're still okay you're not breaking any laws there's only there's just other um small items that you need to do the buyer has to take like a home buyer's class uh a first- time home buyer class with the certificate and everything um you have to get two appraisals on the property um extra disclosures things like that so you can still do it you just have to have your buyer go through a little bit more of a um clarification process what if this is a land contract I know Texas doesn't do land contracts but from our understanding it doesn't matter what the type of instrument is for the the connection it's the fact that the note itself it doesn't mortgage land contracts cfds all come in the same bucket that if you're creating a note back by some kind of security instrument this needs to be in place correct correct because it's all about the origination of that mortgage note yeah so if you can just think about that it's the origination piece of it what about a what a what about a lease with an option to purchase sometime in the future is that the loophole so yeah I think every state has their own uh laws on that um Texas has six months so you can only do a lease to own for six months after that you have to transfer the the deed so uh or you have to actually do the actual closing with them um so um for people that are listening that are in Texas and don't know that that's that's a big one you need to make sure that if you're doing lease to own that you're um actually selling the property to them um month six okay very good interesting um so we already talked about the foreclosure Court a little bit um so if you do have to foreclose on a property and you go to foreclosure court and you don't have uh an aralo um involved or your package or your underwriting or ability to repay or anything that says that hey I did what I was supposed to do to originate this loan um then you're going to be required they're still going to uh they're still going to give you the Foreclosure but you're going to have to pay back um any interest that you've earned on that loan and any closing cost attorney cost court cost wow uh from the time of origination that's really stiff this is getting scary guys for those who are originally loans and watching this and you didn't do any this stuff this is your business this your livelihood this is food on your table kind of it's just not worth it yeah yeah so um so yeah just getting a little bit a little bit uh you know more serious there with the fees and fines the fines and feas we de we'll do it deeper with our attorney we're gonna have Jeff Watson come on next uh our next webinar on 26 for those who are tuning in and that will be just before DME so we're going to take a break to DME week because hopefully we'll see everyone there um and folks on the fines before we get there so those who are curious about it make sure you learn about joining at the 26 for that that session talk about it yeah get your legal questions together for that one we'll we'll pepper Jeff with that yeah AB absolutely okay so this one's a big one for for note buyers um I get this all the time I get note buyers calling me saying hey hey I got you know portfolio here it wasn't originated correctly what can we do so um the the easy answ is re originate it so um the the way to do that is to do a loan modification on each one of them or you know to do a loan modification on that loan um the only thing that you're that you're required to do is give them a um a better term so um I would suggest let's just say that note is five years you know five years old um maybe you write that loan as a 25 year uh mortgage note reduce the interest rate just a slight slight slight bit um and then you know there you go yeah so if you create a land contract or cfd if you're outside Texas of course and you are originating this incorrectly just go back to the Bor and say listen we're going to flip this over to a mortgage right we we'll keep we'll create a note we'll create a mortgage and we'll get rid of a land contract if you're in Texas you create this make a deal with the borrower and say listen we're going to make a deal we we're going to fix some stuff up things have changed a little bit and we're going to drop your a half percent let's recreate this thing and get you in a better spot and that's how really to fix it is should be done resign that and then you're good to go yeah and then we get buying it we're so buying it so yeah we're almost done we'll get to some of theic questions as well yeah so the underwriting package just so you know it just includes the statement of compliance and it's just going to be you know really just the the loan officer saying hey we've we've reviewed we've verified we feel like this buyer does have the ability to repay you're good to go you got a good loan the qualified mortgage report is something that our loan system spits out it's just going to say check mark check mark check mark yes you you have a qualified mortgage um we do provide you with a credit report uh again we don't review it we don't look at it we don't uh put it up as a part of the of our qualification process um the only time that will come to you will come back to you is if there's a red flag um foreclosure um any kind of uh federal laws bankruptcies you know major things like that then we'll say Hey you know right flag uh you need to review this before we proceed or move forward um and then of course the proof of income whatever the buyer has provided you know all the supporting documents for the ability to repay um and then the main thing is the loan disclosures um so if we want to flip to the next one we can kind of go to what we're going to be providing them um the number one thing is the um the loan estimate right because this again um Dodd Frank wants you to be super clear and transparent with your buyer um that shows what the loan terms are in black and white in writing and that they've acknowledged it right so later on they can't say why do know my interest rate was 9.5% so here so here we're just going to show really quick you know um just the highlighted areas that um we're showing them where uh the loan term is what type of product it is um uh one of the big things on here is going to be the monthly payment um and that there's no balloon penalties uh prepayment penalties oh we didn't even go over that one so prepayment penalties is a big one too so a lot of investors think that they're allowed to charge their end buyer a prepayment penalty um but because they're used to being charged a prepay payment penalty a lot of hard money out there you have prepayment penalty so they say well well my loan has a prepayment penalty I need to pass that on to the to the end buyer but you can't because again you're not a protected class they're a protected class so they can pay off their loan whenever they want and you you can't you can't stop them from doing that that's amazing and you shouldn't quite frankly and this was a discussion on Facebook here this week I saw uh no of course we want to get paid off early are you kidding me yes that that shoots our returns through the roof so my buyers a whole thing about like how do you determine your return right and the faster I get my money back yeah the better it is however you don't get the interest for that time period but if I collected interest for three four five years and then I get my money back I reinvest it so I'm gonna get a quick return and be boom and if I bought at a discount I'm gonna get for those not buyers right if you bought it at a discount you're gonna get the entire upb and be singing to the bank the whole way there so absolutely it's almost always that's one of your best exits so yes you want them to repay quickly yeah refinance out whatever however they do it it is golden when they get out so um so yes so the so again we talked about this you have to disclose your total payment uh break it down what's principal and in interest and what's your taxes and insurance um so uh you do have to Escrow on an owner finance loan within the first five years or at least for five years after five years if they want to remove the escrow they can pay that on their own but it's just really a again you don't want to set your buyer up for fail failure so if you were to separate it in the beginning and they don't pay their taxes you're going to go foreclose on them because they haven't paid their taxes so that's not a good thing so it's better to just say hey this is what the total monthly payment is going to be and you need to be able to afford the total monthly payment every month yeah um so on the loan estimate we also give them um the the estimated has to close so that they know exactly what they're going to be bringing to closing that's important um so that the prepared and um um and they they all you know the other thing is just to provide proof that they have the the funds to close awesome um and then the next slide will show kind of a breakdown of what the fees um so the this is an old uh this is like an old uh slide here but um we have an estimate of what the closing cost are going to be we've worked with a ton of um uh you know title companies and everything so we kind of know what what everything's going to cost um so we just do an estimate of all the fees um the the the other thing is that we suggest is to always collect two months of escro reserves um again this is just our suggestion it's not something that you have to do the other thing too that we were we recommend is for you to have them pay onee prepaid home insurance uh reason being is if they don't do that and they don't make their payments to the surfacing company for two months that um that home insurance could lapse and and you you might not have insurance on your your assets or you know what's uh that your collateral protection right right so um you don't want to be in that position where your buyer's not making their payments and the in the insurance is not getting paid um so that's a big one so we recommend that you have them pay it one year in advance that way no matter what they're always going to be covered within that first year and and so forth and so on forever and and all of these things added in here that as a note buyer that's all warm and fuzzy when we see that kind of stuff written in there oh my goodness yes I'll pay you an extra you know percentage of of whatever U yeah as long as I can still hit my numbers but but this this is a very sellable the only thing I didn't see in here right and what makes us even more excited I'm gonna say probably the highest even above Interest being high yeah is the ability and for no buyers you're probably going to say is this legal and it is including service ing fees inside the notes meaning the borrower can pay the servicing fees that we typically net out when we make an offer that at the servic Fe is 20 or 35 I know Kevin's listening right and so how we literally can set this up where we're buying notes and those originally if you can include this great that the borrower pays outside of their p& Piti the the price of the monthly servicing and make sure you include it it'll adjust so that is even more fuzzy right Nathan that if they can pay servicing fees of 20 $35 a month whatever the fee is it's golden yeah yeah yeah like you say we're always netting that out so if that can be included in there oh my goodness yeah inste clicking 330 350 yeah right so yeah we always encourage every single person that comes to us we are always been encourage to hire your Loan Servicing Company to make sure that they're doing all of the the recoring on your behalf making sure that they're collecting those those payments and paying all the taxes at the end of the year it's such a headache um you know just with my own personal portfolio yeah I mean servicing is a lot so if somebody can do it for $35 a month please be my guest yeah absolutely and Al also make sure they're licensed okay don't get us a loan service company that's not licensed so licensing is a big thing and MLS so the fact that what states services are licensed I know Kevin and like so how are on right now uh on the broadcast um so and also on LinkedIn you can definitely talk about this stuff but the idea that when a servicer is licensed in certain States they can collect on your behalf so hopefully that makes sense to you guys um Kevin made the comment that as long as it's on the contract and they agreed to pay the fees we're good to go on that yeah so includeed in there because yeah oh that's that's a Fant we do on the we we always do on the loan disclosures also just right off the bat just we just add it on there for every loan disclosure that we send out regardless if you're going to use a Servicing Company or not uh just because you know we want to be sure right hey you know this is where you how you should go this is the path you should take so we got we had a ton of question on this which is great um there's been a lot of questions on this both for the note buyers and for the note creators uh let's go back to this one um Ally she's asking if she has has a property that she wants to do owner financing on and then she gets two or three different applicants they all look relatively good does she run all let's say there's three applicants does she run all three of them through an R rmlo just for the underwriting part of it to see which one best qualifies so we don't we don't do pre we don't do pre-qualifications without a contract um because of this reason right I mean if somebody is doing all this marketing and you're getting all these these people contacted you to buy this house and they're just sending them over to us we're going to be pre-qualifying all day long yeah so um I would say you do you you you have to do your best uh choose the best candidate um the number one thing that I would look for is you know how long they've been at their job um you know maybe if you got three applicants but one of them has been at their job for 10 years um I think that that's you know a big one um if um you know someone's putting a large down payment or somebody's giving a better large uh D I'm sorry down payment better than another person um that's you know skin in the game um so they're not going to for you know want to foreclose or risk foreclosure um so I would definitely go with that person but um yeah I think that the the this the owner the seller um needs to make that decision first before they send them over to the rmlo um and you can request you know um say Hey you know send me one pay stub or or One bank statement just something that you can kind of just look and see okay yeah or or um or just ask the questions how long have you been at your job what do you do you know just a quick quick interview okay awesome awes as a reminder to everybody we're gonna go through some more of these questions as a reminder Sarah is GNA be at DME yes H so you can pest her with all kinds of questions in person she can't get away I'll put the referral code I think it's mine whatever in the D&B uh to in the facebook com Ms as well as LinkedIn so yeah use Dave's uh so real quick aside use Dave's because it gives us the tracking we know which which referrals are working best so we can know if Dave is the best referer then I'm trying guys help me out I get I get a free like microwave or something yeah the other thing is just just for people's information the reason I'm pushing the the early bird tickets so much is I need to know how much food to order I need to know how many water bottles to order I need to know how many lanyards to order so for me that's my purpose for you is to save a couple hundred bucks for me it's all about planning and it's it's 100% about planning if you want to spend more money that's fine but then that just gives me a better head bigger headache and today the last day for the last so make sure you get on top of that so we have a ton of questions I'm trying to keep them organized so follow prob if I'm distracted here once in a while um let's let's try wrapping some of these questions in and basically be like shooting arrows at we feel bad I apologize go ahead naan which one you jump off the page for you let's go uh Ally just real quick She also asked about how soon can I sell a note after it's originated it depends if you're talking to me I'll buy it right away if you're talking to Dave if it's been through an rmlo I'll buy it immediately Dave wants a little bit of seasoning on his three six months well buy a but we're going to give you a huge discount on your on the Note itself on uh because just the risk level yeah but that's good I'm gonna I'm gonna put a really quick suggestion there um if you actually establish a relationship with your note buyer um you could probably have no seasoning on your notes um with maybe like a byb clause you know yeah um that says hey if this doesn't perform within the next three to six months or something happens I'll buy it back from you and it's just kind of that you know you establishing that relationship and that that they that not buyer knows that you're going to be sending them good good paper and and so just as a suggestion yeah and if the borrower has been a tenant for a year that's still seasoning that tells me the fact they've been able to repay yeah yeah okay good question if it defaults Ali then yes you got to go through a foreclosure that's just how the process goes yep um s good job so so how made the comment that he used Nathan's referral good job good sorry guys reading through the questions here yeah make sure nothing Sonica I sold a piece of land which the buyer has placed on mob on now what can I do in retrospect to protect myself yeah so if they if they're living on that uh mobile home yeah then um you know it it would be a good thing to just re originate it yeah we had a question from the not Pusher on LinkedIn that can you modify can you do that modification with only land contracts or existing Notes too anything you've originated could be uh you can't modify if the terms are not done correctly so you have to create a whole new process whole new note because that original note can't be modified for my knowledge we'll ask Jeff on the next call you have to create a brand new note and make sure it's legit and underwritten and rowed for that state now that being said yes just if you're going to a note buyer most note buyers most private note buyers will look at whatever pay history that you had and count that towards the history of the node most of the time you'll get some banks or or somebody that they won't qualify that most private buyers they'll look at whatever pay history you had beforehand and they'll say yeah that counts just FYI awesome so you haven't lost anything [Music] so I'm just grabbing questions for Nathan yeah Mark's asking what about the self-employed people that may not keep the best records of their income so uh we always work with obviously you know 90% of our our um end buyers are going to be self-employed or paid cash so we're very used to working with that clientele um so we help them in any way shape or form to come up with that proof of income um so for instance you have your landscaper um that you know um has maybe five houses and one commercial property that he um that he gets money from and they pay him cash um so we would um kind of help him out by saying okay let's go get a 1099 from each one of your employers let's do a verification actual written verification of employment from each employer um and um you know just start getting um you know building um I guess building that proof of income with with additional documentations um so that's something that we're used to um so that's something that we'll work directly with the buyer to obtain um again we're very used to doing that we have that all the time um now the only people we cannot help the only people we cannot help is somebody who says I'm flat out I I don't I'm not employed I don't have a job and trust me I've had those I'm not employed okay well those are the only people we cannot help unemployed but somehow they're receiving mysterious income you probably want to run away anyway so that's fine so the next question I see here that stood out for me um was from Nick good question where Nick question does how does the Usery law affect APO are you familiar with that how does it is there effect if do you know how that affects it so um the the Usery I think that goes way above above the th the thresholds that we're looking at staying under um this is why we're here and and having this talk today is so you don't get to that point right um so if you're G to go Rogue and you're not going to use an r and you're just going to go and charge the buyer whatever interest rate you want then you definitely need to just go research that in your own in your own State and see what that that Max Usery rate I think it's like 24% or something so if if you're going to be a predatory lender then yeah go check those those thresholds out but if we're we're what we're talking about today is not to be that not to go over those thresholds um so again the higher price right now is going to be six and a half plus Prime so that puts you around 12 13% um if you're going to go high cost you're probably going to be around 15% 14 to 15% we like we like those higher interest rates for us no buyers we want that betterer return yeah for sure but you can yeah I mean but it's still good at 12% oh yeah yeah well we're used to buying it at six and seven perent so a totally different Market here so yeah so that's not bad at all let go through some of the questions here so Hill's got a good one about uh credit when you're looking at like if you're trying to determine somebody's debt to income let's say you look at that credit report and then you see that there's like child support payments on there how does that affect their their debt to income ratio for sure we'll add it to their to their liabilities and we'll um you know obviously we'll get current proof of what they're paying today um yeah but yeah that's definitely something that will add to their liabilities yeah good question um Edgar the question was regarding a situation where the market value of the property is 150 they ask 160 with 10% down would that be compliance with stuation um regarding the fact that they basically sold it for more than the market value says it is that's a very common thing with ciance um there's no wrong or right way to do that thing it's more about the borrower um making sure they have the ability to repay so they basically would you're saying is you would sell for 160 they put 10% down and then they're your Finance arrest I hope they that correct on your question there yes and I mean the there there is no uh I mean that's the whole benefit of doing owner finance right is that you can mark up your property as much as you want um versus going retail and having to get you know uh a lot a lot of these notes don't they don't have an appraisal so even if they did okay so one of my personal properties I'll get an appraisal it'll say hey your property's this is the appraised value but as an owner finance uh seller I'm going to sell this property as at XYZ um and that's my prerogative to do that and if you want the house with owner finance you're going to pay the higher premium right and typically I tell everybody stay under 10% right 10% is probably 10 to 15% is probably average it's probably good but anything over that then yeah so and and maybe a clarification for those that are doing seller finance be the fact that you are offering financing means that you don't have to compete with the bank on a rate I was I was talking to somebody in Utah a couple weeks ago and and he was showing me that he's got this property that he wants to sell on terms and he was offering 5% I'm going why why why are you trying to undercut the bank like you're you're shooting yourself in the foot uh there's no reason to offer that at a cheaper rate they're coming to you because they can't qualify for the bank which means you can charge a premium so go ahead and ask for that 10% because that's the way they can especially if you're especially if you're thinking of selling that note um the number one thing uh recommendation that I'm going to give you guys or advice is you have I would you would have to have or have a conversation with your no buyer ask him what he wants right you know what DTI are you looking for what LTV are you looking for um and and you know the interest rate is a big one I had someone call me too and they said oh I'm gonna write this note at eight% do you have any note buyers I said nope I don't I mean no you you can't if you're gonna do this as a business You're Gonna Want to sell that note at the end of the day it has to be attractive to your note buyers absolutely so talk to your not buyer first before you go create that note I'll put log in the comment section of what makes no valuable right it's all about the term the lower the term the quicker payback the higher of the interest rates right um balloons okay all stuff it's a matter about how fast I can get my money back and how much money I might get on the money so those two pieces are principal thing forget the upb I know we've talked about this in nley that and I'll talk about DME that get over this idea of percentage of upb because it doesn't take into account the fact that the interest rate the term everything there is missing so hopefully we drive it home some more DME but the interest rates the upb is only one part of it and really is not a big part it's the interest rate as well as the term it's a mathematical Financial calculation um to go through that so I see Ray ask a bunch of good questions too regarding um is a higher price code for predatory or what is a current threshold to stay under to stay away from being a predatory lender presume it's everything we talked about today correct yeah yeah so it's um you don't want to go into the high cost so high cost is where you don't want to be that's the threshold you can you still can like I said the buyer just has to go through a little bit of more Loops but um so again six and a half plus Prime that's your max interest rate to stay under that threshold and you can go bankrate.com and go look up what the prime BR is for the week um I think it um adjust every every Tuesday so you can go there check it out do your you know just add your six and a half that's on a first wi mortgage by the way so um if you are going to be writing a wrap note or a sub two and it's going to be considered a second lean then you can go eight and a half plus Prime gotcha that's great and then and I can see Mark's wheels turning on this other question where he says if you're going to do an arm where we talked about like instead of a balloon you do an adjustable r and after five years they increase it he's asking is there a cap on that and how do you determine how much you can increase it right um so um that's a tough one because you know I'm gonna say you know I so we're always going to have a floor so you're going to write an arm we're gonna have your floor you're going to start at 10% let's just say um your floor it'll never go under 10% no matter what um and then so you say after five years we're going to go two points above of the AP plus Prime so so then you know that's how you're GNA how you're going to write this promissary note to say hey after five years whatever the interest rate is of that that in that moment it's going to be six and a half plus two points on top of that so that's a bit of a gam interest rates drop then I mean remember these thresholds and everything that you're doing yeah yeah if you have a specific question s in the chat box there's a link for uh she be pinned for a webinar thing just fill it out and you'll get s's direct information and she'll get yours as well so um yeah yep really good very interesting soal asked or made a comment that on arms I would have a cap of 2% per adjustment that's well said so appreciate that okay okay again this has being recorded will be on YouTube our podcast all that good stuff um so feel free to jump in there you'll get if you fill out the webinar you'll get to get a bunch of emails just to let you know more about it and we're going to have a legal attorney on in two weeks Jeff Watson to explain what happened if you did it wrong how can you correct that part of it and all the kind of Ines and Jeff's been around for 32 years than he told us so he's been around for a long time so for sure and he's one of the top guys to talk about s financing he's going to Washington he's doing all these things he's he's a fantastic had ask these questions too so Ally asked a really nice question all right uh question for us Nathan do we pay less percent of upb when the B has an i 10 instead of a SSN does that matter to us that's a good one that's a I've never thought about that before that's a good question yeah I don't think that would can I say something go go ahead yeah can I say something I have I have a note buyer or lender that only that likes only it okay and why is that what's the advantage or what's that perceived uh in our experience here in Texas uh we have a 1% default rate on on I 10 borrowers okay that that was my question and then my the other place my brain goes is like if if there is a default can I still foreclose with no issues and I I believe the answer is going to be yes because I'm foreclosed for the title yeah I don't think that would make a difference that's a good question for Jeff bring that question back up yeah yeah come back Al if you can join us in two weeks in 26 well we have Jeff on for that's a great question for us peran what would we care about we've again we bought Bank origin notes so this kind of goes out the window but I would say that as long as it's underwritten and they have the ability to repay and our Focus as note buyers is can if things go bad can I foreclose and get that property back and sell it and give them money out of it that's all we care about so as long as the legal process can secure that I'm sure you know Kevin could jump in here too as long as that is not affected I don't care what it is no right long as I'm going for my and my foreclosure yeah and that's 90 I mean for us it's 90% of our business because um you know here in Texas you're you I mean that's majority of of our clientele that can't the people are are going to go to owner finan is because they can't go to a traditional bank right so they have a Social Security number and they can go get a loan through a traditional mortgage um they're not going to go this route so the people that are the people that will never be able to get financing for a bank right just to keep that in mind interesting good question all right Sarah I think we're kind of coming to a close Dave are there more questions we good no I don't think so um if anyone has any final question before we let you guys go please put in the chat before we let Sarah go I once again I don't see the pin thing in there so I'll put the repin in there click that link fill out the information and you'll get an email right from us um response back to from me uh we encourage you to go get D signed up uh if you have notes for sale you can reach out to both of us you can send me an email and I'll share with Nathan we are separate companies but we cooperate together so we love to talk about the stuff and make sure you guys are doing things right so we can make a bunch of money our so we're a little selfish in the world but I guarantee you as many loans you can sell us we'll give you the money and you can repeat this process and go create as many notes you want to so we can buy them from you so that relationship can work out um there a lot of us out there are note buyers who do this specifically work so we encourage you to kind of Stay Stay involved stay active and join us in on the 26 uh you'll see a post shortly uh about that and we'll go from there if there's any other questions I appre everyone's giv thank yous and R say thank you and Kevin all that stuff everyone's saying thank you and happy C de May yes yes happy CLE de May to all my Texas folk yeah yes I'm Melissa she can spend another eight hours in this topic well the legal process would be great feel free to to join with us you an email us if there's a topic you want us to cover on that world let us know and we'll definitely focus on it we want to help you guys create the best Note possible so then we can help we can make our money as well so we're a little selfish like I said um but first and foremost we want to thank Sarah so much for spending an hour and a half with us on this Friday afternoon uh from Texas uh we're looking forward to seeing her in person in DME Nashville uh in June 2nd um just another reminder hotels expire today so uh and your tickets go up in price so awesome uh if you have any other questions let us know the Link's there and we'll go from there Sarah if you could hold on for a minute we're disconnect from public and wrap it roll up thank you everybody have a great weekend thank you very much [Music] sir is there a legal ramification or what could happen to them if they don't do this correctly okay there are two ramifications number one they're leaving money on the table hopefully I got their attention with that okay because most of them are cheap and greedy okay and I don't mean to offend anybody that's how most people are you're cheap and greedy so folks you're leaving money on the table yeah oh let me tell you the other thing you're preventing the whole portfolio from being ripped away from you by an angry aggressive trial lawyer at Morgan in Morgan or some overeager enforcement agency officer from cfpb or the Federal Trade Commission or somewhere else because you didn't comply with Dodd Frank because we've not even talked about the most essential component to these [Music] [Applause] deals hey everyone good afternoon hope all is well I'm Dave put from jkp Holdings alongside of me it's Nathan Turner how are you man very good very very good happy Friday happy Friday hopefully everyone's uh holiday weekend getting excitingly fun hope you have some good plans and spending time with family lots of good stuff happening this weekend before we get jumped into all the excitement that we got going on today which is a big big event for those who are jumping in uh we appreciate it this will be recorded it'll be on our podcast uh be on YouTube be on Facebook we're streaming live on LinkedIn as well as Facebook live Mr Nathan how you been not at all busy not at all you know things going on nothing like that everything's been just like super cool boring yeah so not aware Nathan and I will be seeing each other for the first time in a while live and I encourage all those who are watching us and tuning in please join us in Nashville so tell us a little bit more about the conference we got coming up that we're being slave for a few months about yeah this is I am so pumped about this whole conference thing uh so we are one week out today seven days from today we will be doing uh DME live in Nashville we will have already by this point next week we've already had our axe throwing championship tournament we'll see who is the champion ax thrower in the note world and you will hold on to that title for at least a year until next time that we do that again we've got so much good stuff so many good speakers and such great content I'm really excited for that um yeah just looking forward to hearing from everybody and seeing what they've got to say some people that I've never heard speak before uh and and new information for me and so I'm I'm really excited to get to be a part of that yeah it's been it's gonna be so much fun uh on top of great learning we've been going conferences for a long time and for a little bit it kind of get in stale they just wanted that new information we've hear some of the speakers speak a 100 times and there every time is great content this time is a lot different I feel because what we're finding out is that we have a lot of note buyers who want assets and we have a lot of note Originators who are probably tuning in today we're excited about hey wait I can cash out my deal and these not buyers are not buying it and we're what Nathan's doing is kind of marrying the two I'm sure a lot of people who watch this regularly we do this every two weeks of heard to say but the marriage is awesome it's just the fact we got communicate better we can do a ton of business together I'm really excited about meeting some of these seller finance people and just getting getting to know them because you can meet online you can do a zoom meeting you can do all that stuff that's all great but there's no substitute for iners you know shaking hands looking them in the eye dinner together whatever it is we encourage you guys out there if you are a not origer or note buyer um I put in the Facebook chat I can put in LinkedIn if you needed to um I'm managing multiple screens so if I look distracted I apologize um we're just managing all the comments coming through um so what we've developed or talked about last four or five months now is we've been talking a lot of the big time note Originators some of those people are probably uh tribe members of those people tuning in right now with us who following the Nicks in the marks and the the Brians and everything else and Dans out there who were running very large BAS and social media groups talking about subject two rap notes seller finance and learning that aspect what we're doing now is saying hey we'd like to buy your notes as soon as you create them or a few months after and we'll cash you out and you can redo that and do what you do well and over again aome and and the more correctly they're written the sooner we can buy them and the more money we can pay and what we're talking say the fact that if they're not written correctly at all we're never going to buy the notes and we would hope that you would correct it because you can get into legal as well as morality as well as business issues you can lose all your assets if you don't do it right so we want to make sure that what we know is correct and what we're going to talk about at the conference as well today is what ises that look like right so if we talk about performing and someone mention comment about performing we're talking about perform performing and nonperforming notes we buy so for those who are new to our Channel Our Lives me and Nathan been buying notes since 2010 I think they before I was we bought nonperforming notes for 10 years so nonperforming notes is what we knew we're kind of big on the Performing side because there wasn't many back there so yes we buy performing and nonperforming notes on a regular basis um Nationwide yeah but the comp is going to have a bunch of us there so we encourage you guys if you can or a week away go online I put my link in there just so you can get some tickets for yourself yeah yeah and use Dave's link and get 100 bucks off come and join us ax throwing there's still room it's limited but there's still a little bit of room there so make sure you register for that uh space is limited in the venue so that's that's the uh limiting factor there it's just that they don't have room for everybody everybody so make sure you register and get there and a lot of you guys will see if you're following all the tribe groups you're going to see a lot of the people you follow and watch regularly on on the channels speaking on stage you're going be a handshake a lot of people that you really enjoy being around yeah so well today is a really big day for me I felt that and Nathan to bring on someone that I respect tremendously who's been around this space longer than I think two of us together combine and feeling the fact that I'm going to uh hit a button here to start bringing them in here uh Mr Jeff Watson is someone we respect tremendously um he's someone that can speak the topic you can feel comfortable around him he's been doing it for so long he's comfortable talking to anyone about anything um it's awesome right so we are really excited je wats join us Jeff welcome just a wealth of knowledge here he comes it is it is fun to be here with y'all it really is um I'm just looking to see how well the stain on my t-shirt shows up it's there hey folks if you're wondering I'm real I am I am not a stuffed shirt I am just a just an average ordinary guy okay so yeah so Jeff we usually ask people when they get on here how'd you begin how'd you get started with this thing it's a story how did I get started how did I get started as an investor how did I fall in love with notes yeah which which one do you want were you a landlord before did you were you a plumber what were you okay so back in undergrad I was an undergrad working on a degree in biblical studies KN when I was going to go to law school and I was heavily influenced by my favorite uncle on my mom's side of the family he had never gotten past the eighth grade he had a little bit of a speech impairment um this lexic today we would label Him special needs and so on but brilliant man brilliant man alive and well to this day um he and his he and his wife my favorite aunt and uncle they had made their first couple million in residential real estate as landlords in Southern California and then they had moved to dahar on Saudi Arabia because he was a brilliant air conditioning Refrigeration man and they he heavily recruited to go over there and run the huge chillers and freezers that they needed there in Saudi Arabia and he he just one day sat down and just shared what was going on and it was 1983 1984 and he had to write a check to the IRS for $37,000 and he was on a campaign to get his money back and I listened to intently to what he had to say and at the same time that he's talking about it my stepdad the man that my mom was married to most of my most of my all my all my formative life uh he made the company say 37,000 that's how much I made last year you know and this 1983 so okay um so I had a quick you know moment of what which guy do I want to listen to the uncle that never got past the eth grade that has a little bit of a stutter but is obviously pretty successful as an investor or do I want to listen to somebody else well I chose to listen to my UNC and it it started with understanding how taxes impact investing that's where I got started and it just kind of sat there just quiet until I got out of law school had a decent job had some income and then we bought our first house and it was a it was a up and down duplex in Cleveland Ohio on the West Side still own that house to this day and um started adding other houses portfolio realized that I needed to get some education I could not do this all by myself being a oneman band being a lawyer it was just a bad idea so I started getting some education and I sampled from lots of different troughs lots of different funnels and I found the ones that really work and the ones that really don't and you know so fast forward I'm doing this from I bought my first property in 94 okay so 10 years later I'm sitting in an event in Nashville Tennessee and my then spouse elbows me in the ribs saying hey go buy this course on short sales it's something I think we can do together so on the third time third the third time I took a shot in the ribs I finally got up and went and bought the course and we had some success doing short sales okay but it brought me into a circle of influence with guys like Greg Clement who he and I co-founded real flow together in 20062 2007 and um I recognized that there had to be a completely different way of doing short sales for the back toback closings so I with the help of some really good people at a tile company we brainstormed a way to do it I papered it all up and then the marketing engine that Greg Clement knows how to run just took it and it went viral and so I went from being just a just an average attorney in Northeast Ohio but a guy who knew short sales really well uh to now I'm an expert okay now I'm an expert all right so but I'm I'm going to a point here um I got to the point where I couldn't stand short sales anymore particularly after I encountered this guy out of Mississippi who was done living in Dallas Texas who's got this funny accent but is razor sharp when it comes to notes and when I understood that I could be the bank instead of the boy standing there with the bow asking for more porridge from the bank I was like forget short sales I'm buying bad paper because I want to buy bad paper so so we start doing that a little bit and one of the first deals I did really of significance in the in that Arena was um my business partner who's still my business partner this day Greg Clement he and I co-founded real flow if I haven't mentioned that before I'll mention it another nine times um he was chasing this one prized property in Brunswick Ohio and all of a sudden the bank which had had it in foreclosure decided they had to hit the gas because Bank Regulators were on them they needed to get this thing sold it been with a um been with a receiver for a year there wasn't enough time to do a short sale so I just approached the attorney representing the bank about buying the notes buy the notes buy the default buy the judgments buy everything we negotiated a price where we bought it at probably a number that would make everybody jealous today we bought about six and a half million for less than 1.7 okay we did this in 2011 okay he has turned that property around because I orchestrated it and he you know I orchestrated the paperwork in the strategies and Greg executes and Greg is just a great great communicator with people uh today we we shortly backed our way into a favorable deed in lah foreclosure that I could get insured and then that led him six months later get an SBA loan in place the SBA attorneys were like how in the world do you do this we don't know how you did it but we're impressed we can fund this thing and Greg is now taken this thing that he put 1.7 into and it's probably worth about 15 million today and it is a cash cow and we've done it since then on other stuff so that's a little bit about how I got into notes and then it gets a little more complicated because short sales were getting harder and harder to do and I don't know if anybody on this call ever remembers Countrywide number 10 in the short sale approval letters and that was the beginning of um me starting to have to work on policy at the at the national level and so number of trips to Capitol Hill number of meetings with members of Congress finally we got fhfa which was then chaired by a republican member of Congress to uh put their put the weight on Freddy Mack Fanny May and everybody else's Hey listen these 90day these 180 Day short sale restrictions deed restrictions ver boat no way we'll let you restrict it for 30 days then we can resell and after 90 days unlimited unlimited so we got that pushed through took a few years to get that done uh nothing happens fast in Washington DC except posturing in front of a camera man they're in a hurry to do that okay so yeah and I mean and I got a lot of guys that I think are friends good friends of mine on both sides of the aisle members of Congress but whatever so that got me involved in the politics and the in the policy issues and then one day we're there for some meetings and um a friend of mine Chief Operating Officer National Ria says oh by the way I forgot to tell you we have a meeting at cfpb today they want to talk about land installment contracts you're coming because you're the expert and I looked at him when I smiled I said well thanks for the notice let's go so we show up at cfpb and it's a room of like 18 people there's myself my friend from National Ria and one other individual I can't remember and then there's 15 people from cfpb and they start hammering on all the things they don't like about cont who don't know what is landstone contracts and what is cpb because some people have no clue we're talking about and what year was this that you sat down with those guys 15 2015 2014 I don't remember it's after Dodd Frank has been brought in is do Frank is showing up yes yeah okay okay just for some contacts all right contract contract for deed L contracts land installment contract bond for deed contract for deed all of these different terms where it's hey we have a written agreement that you make the payments and at the end I give you the deed to the property y okay and what is cfpb in Consumer Financial Protection Bureau created out of the housing meltdown yeah completely woke Progressive organization been operated pretty much by some very powerful liberals at the time I was there Richard cordre former Attorney General of the state of Ohio was running it you know and anyhow but at the end of the day at the end of the day with this dayong meeting at cfpb on land contracts I felt like we walked out of there having shown them that they did not have the regulatory Authority that they thought they would have okay because they ran into this thing that I had to remind them called the 10th Amendment where every state has the right to regulate things within their own jurisdiction and every state has laws on their books regarding how real estate is bought and sold in their state and land installment contracts land contracts bond for deed whatever you call it is regulated in every state there's a statute in there well they still wanted to do some things and I and I I heard what they had to say and I agreed with some of their Concepts and I'll share some of those Concepts today because it applies whenever you're originating any kind of seller financing these are things that if you do these things you're going to have two results you're gonna have a better note you're gonna have a better deal and you're gonna have less heartburn later on so you know we'll get into that uh but that's a long Meandering background on part of my life you know and just to just to bring everybody up to speed I still am involved in Washington DC I'll be there in a couple of weeks earlier this week I was in Columbus Ohio at the State House some meetings there once through the house off the floor and get it over into the Senate and we had a very obstinate abstinent obstinate and absent Republican member of Congress from New Mexico thwart us and it really frustrating but the good news now is the lead sponsor on this bill co-chairs a subcommittee on the financial services side and Republicans control that committee now since it's in the house and we're going to make this bill move and I believe we're going to get a senate companion bill because now previous members of Congress that used sponsor it in the house are now members in the Senate so we're going to get them to come on board so we're going to make this thing move um get it further than ever before I feel like instead of being on the 10 yard line with 90 yards to go I feel like we're probably just outside the red zone now that's fantastic so yeah and it's been guys this has been eight years of work congratulations eight years of work to do this I mean so yeah anyhow let's back into this IDE well you know this is a huge number this isn't 12 which we thought may get into we doubled what expectations that I thought you had to get to 24 I'm I'm almost speechless because it just changes the gain flow of people um in regulations and whatnot for those people who are creating rap notes creating owner finance notes what did they have to do before and what do they have to do after this bill hopefully passes and goes through what does the change for those investors okay great question so let me give you some history before the housing meltdown and before the Bush Administration signed the Safe Act into law there was no limitation there was no federal or state regulation on seller finance transactions on the number okay SAFE Act took it from unlimited down to five but that wasn't good enough the progressives wanted to take that five and turn it to a misshapen three was said oh well you can only do three in 12 months but the first one you can do this way and the other two you got to do that way and blah blah blah blah blah so anyhow kind of a it was kind of an eerie moment I was having a meeting with um congresswoman Gwen Moore out of Milwaukee Wisconsin in Barney Frank's Old office talking about this bill and why it was written the way it was it was kind of a kind of a weird moment but anyhow and she reminded me she says you know this used to be Congressman Frank's office and I'm like okay appreciate that but still let's talk about you supporting this bill because this really matters to inter city buyers this really matters to Urban buyers that the banks I mean let's face it do Frank has been the greatest discriminatory redlining tool that we have ever seen since the Emancipation proc was enacted um if you you in 30 seconds what was J Frank for those people who we've run into a lot of people me Nathan in the last six seven months who are creating 80 loans with a checkbook at a local Diner signing it off and going here we're gonna make a deal with you they have a mortgage and Note and they have a owner F I know they have an own occupied member going in and they've created tens and hundreds and loans and people watching this feed right now who have are trying to get it through this is what people were doing an owner occupied properties and either they never heard of Dodd Frank or they heard about it and didn't care okay well okay so I can't we can't turn back time doing a seller finance deal if you want to really do this thing right to where I feel like you got a a note that has got much Val that's got more value on the secondary Market than otherwise here's some of the stuff I want you to do I want you to have an independent opinion of value of the collateral a BPO or an appraisal I want you to have an independent property inspection report what's the condition of the property at the time of the closing let's make sure we're selling good stuff and not a bunch of crap okay those are things that are important um let's use a standardized format for our notes and mortgages something standardized where we can look at it quickly and we can see who's the maker who's making the payment when's the payment do how much is the payment what's the interest rate what's going on with this let's do something standardized and simplified okay let's make sure in addition to that that we do not selfservice these things let's board these things with a licensed servicer when I say licensed I mean licensed in the state wherein the property is located and where the payor is residing okay so that they can collect the payments so that they can send out the appropriate notices so that they can the correct Communications under the fair debt collection practices act and under respa and under Tilla and so on and so that most importantly they can accurately account for the money because they've got a great software program that based on the day they get the money they know how to put it into the amortization calculation they know how much is going to then principal how much goes to interest how much is then escort for taxes and insurance so most Mom and Pops that create them at the diner with their own handwritten stuff Dave you know this Nathan you know this they can't do that no and then they can report it to the credit bureau reporting agencies okay so so for those people who we want to make sure that we're focusing on those people who are doing this incorrectly and for the not buyers to understand what they should be doing when they are creating these notes at with a checkbook and saying Hey listen if you have to finding the bank to put down payment on there and I'm going to collect it and I'm going to load it which we've seen with the parts.com which is a rental site the tracked payments and it's free and easy and clear we all would want them to do it correctly but why is there a legal ramification or what could happen to them if they don't do this correctly okay there are two ramifications number one they're leaving money on the table hopefully I got their attention with that okay because most of them are cheap and greedy okay and I I don't mean to offend anybody that's how most people are you're cheap and greedy so folks you're leaving money on the table yeah oh let me tell you the other thing you're preventing the whole portfolio from being ripped away from you by an angry aggressive trial lawyer at Morgan in Morgan or some overeager enforcement agency officer from cfpb or the Federal Trade Commission or somewhere else because you didn't comply with Dodd Frank because we've not even talked about the most essential component to these deals and here it comes folks if you're going to originate any sort of seller financing I don't care if you only do one deal a year most seller financers do two deals or less a year okay I pulled the data it's it's it's amazing what's out there um you must document hear that word document which means you've got to collect some written hard copy information and keep it regarding the maker borrower buyer's ability to pay which means you have to underwrite what their financial situation is what do they make what's it going to cost them what's this mortgage payment a percentage of their income if you don't have that information you haven't documented their ability to pay you have broken the law and I got news for you I got news for you that you created a note that I don't want to touch it's toxic yeah go put it in a nuclear waste landfill because I ain't touching it so if they go to court with this kind of paperwork and they're trying to foreclose because most of these people don't think they'll ever have to foreclose because in the last three four years things are performing right yes thank you debt income ti What could happen if they go in front of a judge with this paperwork that says the mortgage and Note and their down payment and the tracking it internally not saying a monthly payments not saying a yearly statements and they go in front of a judge when this thing defaults because Hey listen the best borrowers in the world can die they can get sick Anything Can Happen what would a judge do with that asset well there's a couple of things that could happen and none of them are pretty none of them are pretty the best case scenario is that they're going to have to go back and actually do a real legitimate loan amortization calculation and really know what's owed because they probably don't have that accurate number so if you don't have an accurate number then you don't have really good legal standing to even begin to foreclose the worst case scenario is that you're going to run into a borrower who contacts legal aid and then either the legal aid attorney or somebody else turns them over to some some sort of consumer defense attorney and boy if you run into this in the state of Ohio you're going to go meet a friend of mine and he is and he's a friend of mine he is vicious on lenders that don't do it right okay former Attorney General Mark Dan that man has a passion for going after unscrupulous lenders and he's dang good at it okay he is good at it um he collected some large class actions and large multi-million dollar settlements from some of these lenders he's he's good at what he does okay fortunately he's a friend of mine so yeah um but that's what you're gonna run into and then they're going to basically show how you violated the law and your Note is unenforceable and you've got to give back all of the interest that you may have collected and earned and you might be lucky just to keep the principal and oh by the way you better do a loan modification because don't you dareen try and think you're going to foreclose on any illegal in non-compliance note yeah and so now what you've got is you've got a hostile borrower who knows they've got legal leverage over you for the rest of the term of that note and you be screwed and I don't think it's limited to that one borrower that turning nail sees the fact you have eight 10 12 other properties that you did the same thing and those borrowers who are performing may get a little more information they might get phone calls they might get letters they might get personal visits just to make sure that their legal rights are protected by that same lawyer that's already taken to the Woodshed wants yeah so and then for the little guys that are doing two a year are they Untouchable because I'm too small no they're not Untouchable but they're a lot they're a lot safer okay if you're doing three or less you don't have to worry about a lot of stuff right except being being able to prove that you've documented the ability to pay yeah and that's a mathematical I talk a lot of people oh yeah I saw that money in the bank I sell their bank statements it's good right there's the actual formula that's done to prove the ability to repay you can look it up there's a formula please watching YouTube LinkedIn whatever you're watching it and this is why we brought Jeff on if you don't do this it can kill your business so not only do you need to do the formula but you need to keep the information that you use to calculate on the formula you need so flat out I'm gonna just tell you what you've described is the guy that does these deals at the diner table they probably never collected a loan application right they probably never verified employment they probably never verified credit they probably never verified anything they have no idea how many other payments they've got they have no idea what their debt to income ratio is they have no idea what their overall Debt Service looks like they've got no clue and I'm GNA put it like this I'm I'm gonna be very straight you are doing yourself the borrower and our industry a huge disservice when you do one of these deals with somebody who really can't afford to pay I consider you to be a form of a thief a white collar criminal that's you know and hey I'm I'm probably being a little harsh and I don't care it's my opinion sue me I don't care I wouldn't sue him be hon you right and I I'm not looking for you to exact I actually Googling myself do you know the actual number of DT with the ability repay number I thought it was on 47 or 43 what is you remember what that number is off the top of my head no but I know I'm sure our fee will I see three I see you know so I'm sure someone figured out for me you guys posted appreciate it you guys there you guys have collected some brilliant nerds they probably have that number right on their fingertips and they can send you links to all that stuff and I got it great you know that's not my job you suggested we had a live call we have a for those who don't know we have a private Mastermind group where we talk on Wednesday and Jeff was on Kisco thank you so 38 to 43 you suggested not to go to the top right don't if the number is 43 don't go to that 43 number go below it to make it appear that something goes bad Hey listen I didn't hold them to the highest level I gave them margin I gave them room to breathe how many of you are guys and you've had to wear a collar shirt button so tightly to wear a neck tie that it's hard to swallow or breathe and you feel like you're choking that's what you're doing to a buyer homeowner when you max out their when you max out their DTI okay and here's the thing this is this is one of these things that gets me a little fired up because there's a little bit of truth to it but then it gets contorted and let me explain when you offer seller financing on a Quality Property did I say Quality Property yes I did and I meant it not some piece of junk that you wouldn't live in okay but when you offer seller financing on a Quality Property yes it has a greater value to some extent but don't get greedy and stretch it all the way out because it doesn't have that okay or sell it above market value pardon me or sell it above market value just because you're offering terms yeah that's wrong me that's wrong I I agree could you if someone sold it say it property worth 200,000 they sold for 25 210 where is that line are you saying flat 200 no I'm saying if the if the marketplace says that it's worth 200 if I go get a traditional bank loan and all that other stuff fine I'd push it to maybe 205 27 leave it at that okay yeah I think it's worth I think it's worth a you know a three to 5% bump and that's about it sure but it's not worth more than that so we have a lot of people doing this the incorrect way and a lot of them don't know right because they're being taught by people that we won't make comments about right now do right teaching about just doing it and just getting involved we hope that those people can collectively get together but yeah you know these people who have been creating land contracts maybe not taught they can actually have to get underwritten which they do right or creating notes or mortgages right so when they're creating these things and they've done it incorrectly for those who are watching and listening what should they do right now with those old notes because they may be getting scared right now so if they've done something that was sloppy or incorrect there's the first thing you have to decide first thing you have to know is did you do it because you did too many without using an rmlo or did you do it because you just used bad paperwork you're you're early doing two a year because if you only did two a year or three a year or less then okay that's a different easier fix okay go back and modify the deal collect a new loan application get and document their ability to pay and modify the deal and do a modification and restart the clock so to speak okay that's the way to clean that up if you did more than three a year then you're going to have to go back and do that modification but you're going to have to run every one of those borrowers through an rmlo to make sure that they have verified their ability to pay and then go back and modify the paperwork modify the terms and restart it with standardized documentation and I would tell you if it was me and I was representing you I would say give them a couple thousand off principle in exchange for them signing a release and waiver for any previous discrepancies or errors in the earlier version of the deal you did with them bucks or or half percent off I'd give them something something that's material consideration right okay something not not 20 bucks not 20,000 yeah okay somewhere it's a couple thousand dollars that's like hey you weren't harmed you didn't miss a payment I've not cheated you but yeah thank you for your cooperation this is one of the other documents we need to sign is a release release and hold harmless for anything in the past you know I'm gonna not chase you for anything you're not going to chase me for anything we're going to start with a fresh slate because I'm aware that now I've got to do this a little bit better and I've got to prove that you're making the payments and oh by the way now I've got to ship this note over to a Servicing Company and they're going to be the ones now collecting your payments because now they're going to be timely correctly calculating the payment and the amortization and they're going to be the one reporting your timely payments to the credit Barrel yeah yeah so it's fixable all those things well for the most part it's fixable um but it's gonna take f as long as everybody's still friendly right if they're friendly it's fixable right now if it's not friendly it's still fixable but it's going to cost you you had a client that bought a Pap bought paper in Pennsylvania that wasn't originated correctly the Attorney General's office got involved the Attorney General's office cut him a little bit of a slack because they realized he wasn't the guy that was the bad actor it was the person before him yeah it still cost him he had to give up like 105,000 in equity you know R reduce principle by 10 or 15 grand yeah so Jeff so many people listening to are are buying Subic twos right and then wrapping the note it's a little bit different conversation than the owner finance what is your thought on that process which I from my sh you're fine with sub twos but then talk about that part and then the part B is I want to buy that rap note can I do it and what would you suggest me buying it as a legal point of you what I should or should not be doing wow we we have 15 minutes we have how much time 15 minutes right okay yeah because yeah I've got a lunch date with my daughter in like 18 minutes so I got okay so first of all I'm a fan of subject two done correctly okay I'm a big fan of it done correctly I'm not a fan of the way it's being taught by other people out there and there's some people that are I'm just going to say this there's one guy running around that did it in the past and let 10 native go to foreclosure and screwed up 108 different families lives because he wasn't a person of his work okay that person should not be teaching subject to ever again in my opinion until he makes all 108 people correct makes them whole uh there's other people who are brilliant marketers that have not got the experience in the industry to really understand what they're doing and I watch them they par it with some of the experts who are clients of mine say my client says it on Monday they're parenting they're parting it you know repeating it on Thursday so let's get into this um there's something I like being done in the subject two space and there's something I really despise in the subject two space I'm going to talk about what I despise first when you get a property under contract and then you sell it or assign it to somebody else for them to step in your shoes as the sub to buyer and they pay you some money and then walk away and you walk away okay Nick snay I don't like it you have taken a struggling homeowner put them in contact with somebody else that doesn't have the same depth experience and knowledge that you should have should have and now you're the only one that's profited out of the deal and you're out bad I've decried this in the past there's a guru out of Texas that has sued me over it didn't have the guts to get me served but he just filed the lawsuit you know imputing my name but whatever it didn't matter you know so I've been on I've been against that method for a long time what I do like is if you're in this business and you're you're acquiring subject two and you want to resell I want you to resell on a WRA all-inclusive basis because you're fully disclosing what is the underlying debts that you're selling at subject to you're fully disclosing the difference between the two okay so yes part of the financing on this is that we Bank of America has still owed $489,000 on this $700,000 house and I'm getting paid the difference but when we sell it on a wrap we're doing it in a way that legally and from a tax standpoint is the most compliant because we stay in the middle of the deal we stay in the middle of the deal now these are things that you set them ight these are like frock pots you can just set them and forget them and the money shows up every month if you do it right and I'm a big fan of that okay I'm a big fan of money showing up every month whether I got out of bed or was in the states or not okay I'm a big fan of that um so that's what I like now later on down the road can you resell that can you resell that position yes you can but whoever's buying it it better understand and better be smart enough to understand well how did you underwrite the deal what's been the payment history and oh by the way the underlying debt yeah that means I'm still GNA be I'm gonna be stepping into this thing where I now have a moral responsibility to make sure that underlying debt is paid that gives you some pause and makes you want to think about when you want to step in and buy these things I wouldn't even think about it until I've seen a couple years really good pay history on it then I'd be like okay so we got the bank loan that we bought subject to is just purring along everybody's happy they're taking their payments Auto rip great love it and my end buyer who's occupying the property who I underwrote who qualified clearly can make the payments we're good there they've got a pay history of 24 months okay great now let's talk about maybe I'm going to sell a partial off of it maybe I'm G to sell the whole thing but boy I better be prepared to fully disclose everything in the deal all of the disclosures that I made between the seller and I all of the disclosures and Arrangements between the buyer and I the whole bit you better be able to lay it all out because if you can't iay it's it's it's a it's a bad deal you better you better shepher it across the rest of the line this all stuff in trust when you do a subject two how would you regulate that put that subject two situation that it's okay yeah I love using trust in subject two in fact I taught a class on that last night um and you know so anyhow I will always set it up where I form a trust I as the investor buyer will form a trust I will be the trustee I'm going to then buy the property subject to as the trustee of that trust that trust is owned by my buy and hold multiple member LLC that then means that the LLC gives me the asset protection and gives me the financial backing for that trust I'm not personally obligated that but I'm staying in the deal I have a real problem with doing deals and then stepping out of them and not being involved anymore where there's somebody at you know where the sellers who sold the property Fred and Wilma sold me the property subject to I want to stay in that deal for as long as I'm paying First National Bank of Bedrock once First National Bank of Bedrock is gone oh well then that's a lot easier deal for me to feel comfortable about reselling somewhere else can we go ahead and yeah Nathan yeah I wantan to I want to buy a rap loan but I don't first of all I I'm a first guy so I want to be in first position just out of principal and nothing else yeah well then you gotta get rid of First National Bank of Bedrock right so in I mean I could just do that right like I could just buy the rap loan included in my price is paying off the underlying first yep and then that put me the first position everybody's you know it's just far simpler structure and I know a lot of people we talked to our call Wednesday was why you give up a great situation where the First National Bank is at three two four% and you want to pay it off can you talk about the legal side I don't know if it's legal more morality but I'm with Nathan like may may not make Financial sense to give up 3% cash right however we didn't make that agreement with the sub2 borrower at that time can you speak a little about that besides it's 3% plus I'm paying my investor so it really doesn't make sense if it's my own money maybe but if I'm borrowing money to go and buy notes in the first place then the borrowed money plus what I'm paying to the underlying Bank of Bedrock then it doesn't make sense maybe math wise it doesn't make a lot of sense but otherwise it does okay so I took down some subject two stuff about a year and a half ago and one of the underlying debts was a loan being serviced by Wells Fargo now I'm doing well right now to say the name and not have a nervous tick because I just despise that institution one of the first things I did is I just found the extra cash and I got rid of them yeah because I just don't like them I don't trust them I believe that Wells Fargo lies every time they move their mouth okay I just want nothing nothing to do with them yeah so was it from a from an Arbitrage math sense did it make sense no from a avoiding a hassle and headache sense from res from limiting people that can Yap at me and dogs that can bite me it made a lot of sense okay and so this is one of the things that I some of you some of you loving I love some of you note nerds but you only look at the math and you only look at your calculator and you don't look at the human dynamics and you got to look at both you got to look at both and getting rid of a pain in the neck Bank lender is worth it I mean I will readily pay 9% to a private lender instead of six or seven per to an institution how about the fact that you made a promise to as the original subject to buyer now I'm going to buy the note they didn't make a guarantee that I'd make the payments right right is there a legal thing or is that more of a morality thing you would say that is a moral thing because there is because when I buy Sub to I make it very clear I'm not promising I'm gonna make your payments but at the same time I'm proving to you hey based on the amount of money I gave you for your Equity both down and in payments and based on the amount of money I've put in to continue to maintain and run these properties as rentals it would be financially irresponsible of me to not the payment right it would be just why don't I why don't I just go pile the money up in the bank hit in the driveway hit it with a lighter fluid flick a match on it and go can you legally transfer a power of attorney that you did in the first situation to the new loan buyer yeah no a power of attorney cannot be transferred or assigned so but go back to what Nathan talked about you want to buy that deal in the secondary Market go ahead and fund it with enough money when you buy it to get rid of the institutional debt then the seller's gone their debts gone the Deeds been out of their name they're gone you don't need a power of attorney anymore for them you don't need anything out of them anymore they're gone they're out yeah yeah that's that's the only way that I would want to do that I I don't want a Smart Way Nathan it really is yeah yeah I don't want to be attached and it's too messy people yeah and we got a lot of feeds uh back about some questions all stuff um I put in the chat too you can uh we have a little form you can fill out and if you're looking to get a hold of Jeff and learn more about the stuff he does have classes um he's not bringing up not that we asked him to but he wants to focus on giving content today um which Jeff has always done I've run situations that Jeff bailed me out of because I didn't know and that happens to everybody out there and that's why Jeff's around yeah and Dave I don't even remember what it was I mean whatever it was it was or 16 and it was literally sitting in uh note Expo I think it was and I came just for that fact I want to learn about it was self-directed IAS St and didn't know a partner could be disqualified participant and he fixed it for me so guys we all walk around thinking we know everything and we we believe we learned everything but sometimes you haven't and we realize that as investor that we always there's always something learn and we grow so we encourage you guys not to only do this for legal sense which we've talked about today but morality sense of listen can you sleep tonight knowing what you're doing right and if you can't sleep or if your a person who just does this normally it's going to come back to haunt you it happens I promise you so um I appreciate those people in the feed who are answering questions while we're just no negotiating that uh I I appreciate that and always learning is a key thing um and you know one value your time or where it just can't get three minutes so I'm G to ask you one question and Nathan always going ask the last question um so are you be speaking anywhere soon or I know we have the uh link inside the once you fill out the form you're going to get all your information are you be speaking anywhere soon that people could be coming to or see you I'm trying to think we're hit we finally hit the summertime um my brain is a little numb because I just got done with a 40-day stretch of pretty constant prettyy much constant travel where I couldn't even remember some days what day of the week it was or what city I was in or what I was supposed to talk about that day um so I've wrapped that up um I don't have anything on the horizon right now um I know where I'm going to be next I know the next events I'm going to be at as an attendee learning is going to be uh an Acquisitions class in Tampa Florida being taught by Pete for cool knows please look them up pardon me no one knows who Pete is or John H is please look them both up you better look them up I mean both those guys are good friends of mine I they're they're brilliant men brilliant men um I've if you're if you're curious about what I'm teaching I'm doing a lot more stuff virtually and online so go ahead and register for my email newsletter and I will be emailing you and sending you hey when I'm going to do a a free to attend zoom on whatever like I did one last night on using trusts a primer on using trusts in subject two in Creative Finance deals I walk through what does a trust look like how does it operate how do you set it up what do you do with it and so on I walked through all that last night for about an hour and just you know go for that and I do that I do that maybe once a month stuff like a minute left before you have one for your daughter my man so I'm Nath ask the last question and we'll wrap up with live and we'll just cover a few minutes with you go ahead Nathan what's your so well first I I'll suggest that want a little bit further out in the Horizon we missed out on having you at DME this year but we love to have you next year those don't know make sure you check out it's a note group note investing conference for note reg and buyers um happening next week it's in the comment thread I'll put it back up there who in Nashville next week next week we're in Nashville where in Nashville it's the Hilton uh by the airport okay yeah okay yeah Nashville Nashville is a great place I I really like the city of Nashville I really do yeah yeah we're very much looking forward to it all right Nathan you got a question yeah so where do you see with everything that you're seeing and included in that with your visits to DC and everything what do you see coming up on the horizon where's where's the economy going where's the housing market going what's your crystal ball I'm going to give you some stuff that probably no one else will say Okay um we have a war being waged against private capital and it's very hard for small mom and popop institutions to compete in this market it's making it hard on Community Banks and Regional Banks that's one of the things going on um the FED is still fixated on unemployment and doesn't feel like they've got unemployment high enough yet to where they can back off on raising rates so I expect to see rates go up I expect to see more and more consumers get literally tapped out to where they can't handle it so keep an eye on uh credit card delinquencies keep an eye on auto repossessions when those start to move up higher then we know we're really going to go into a bad problem um I would tell people keep some powder dry because there's going to be some great deals in fact I'm working on a great deal right now um because the Market's freezing we've got a bunch of investors standing around like deer in the headlights and now is one of those times this is one of those key times to buy is when no one else knows what to do act decisively if it's a great deal if it underwrites well grab it okay um I think we're gonna see I think we're gonna see a very interesting situation we're gonna see we're still dealing with what happened three years ago when the federal government began jamming trillions of dollars out of thin air into the economy we're still dealing with the ram ifications of that when it relates to the labor force Supply chains inflation housing cost stock market the whole I mean it everything got distorted by the trillions of dollars that got shoved in there yeah um we're still we're trying to figure out how that's going to sort itself out the FED has no clue what it's doing in my humble opinion um but that's just my humble opinion because they're using a bad system based upon faulty demographics um I would tell you that we're going into a very interesting period of time where we're now going to find out who really is an investor and who was just a tagal enjoying the falling interest rate rising market were you a buy and breather or were you an investor and the area that's going to get hammered the hardest the fastest is going to be the wholesaling industry is just it's it's going to its knees right now MH um residential Apartments they're freezing up there's some great deals out there I'm going after one right now but there's a lot of people who are scared to death and don't know what they're doing and that Wall Street Journal article earlier this week was not a kind article okay um just perpetuating fear yeah the next thing out there is if you've got good deals with good people on your seller finance stuff be prepared to work with them on modifications if they get in trouble stay in touch with them make sure that they know that they can reach out to you because it's going to be relationships that are going to get us through this bumpy spot um golden houses too because it's GNA trickle down eventually oh great underwriting we've been doing for 10 12 years now it's still people are going to default yeah and people are not going to default because we made bad loans people are going to default because the economy pulled the rug out from underneath their feet because Congress spent way too much money in the last three years and that includes both two that includes not one but two different presidents in that time frame by the way folks so don't think I'm being I'm being a bad on one guy okay um this debt sealing issue is going to be an interesting thing to watch I think that's going to give us a big clue as to who really who really is going to control things going forward I pray that speaker McCarthy stands firm he's got a house he's got the House Majority behind him that's going to not back down um he's got some moderate rep moderate Democrats are going to come with him on this stuff the question is will reality sink in in the administration and the people like Pelosi and Schumer that's where we've got a see will reality sink into their heads that we cannot continue to spend like drunken Sailors yeah wow well Jeff I'm gonna we're gonna let go live feed right now we'll wrap up with you for 30 seconds and let you go do your lunch we appreciate you having on having you on our live feed here it's my pleasure enjoyed this conversation and time flew man time flew thank you so much thank [Music] you a note partial is essentially selling what exactly what it sounds like a part of the note you're selling a part of the payments right so if I want if I'm selling 10% of the note and there's 300 payments left then do the math I'm selling those payments in a note partial I'm assigning not only the note and the lean in Texas um but that's the ownership right so that's the point of a no part whether you're doing a full sale or a partial sale I'm taking over ownership of those portion of the payments um which is different than a hypothecation which we can chat about here [Music] in hey everyone Dave puts here good afternoon I'm joined as always with Mr Turner hello you Nathan hello Friday afternoon it's been a fun week I think things have been progressingly forward with some of the stuff we're doing internally um I'm looking forward to the coming weeks some stuff's been really happening on our side I haven't even told you yet about since you've been off the grid hiding from me uh for the last couple days uh tell us about that where were you at for the last couple been haunting you down had a great time so I get to take advantage of Canadian holidays and US holidays so it was great so Friday um Friday was normal but then anyway we went out uh on Tuesday so July 4th started out with a camping trip started with whitewater rafting uh in the Canadian Rockies and man that's fun if you've never been I highly recommend it it's just a ton of fun um went out with h with our church group and did that first and then just in the mountains no sell service no anything so it's just completely off the grid gorgeous surroundings really really nice I'm a little I got a little bit of color I think so looking good oh man I'm a little jealous of you we've been heading about 90 degree weather here in Jersey for the last week oh yeah with just random scattered thunderstorms out of nowhere like Florida weather um yeah we just skipped the rain so we're okay oh that you're lucky so it's amazing that you know what we've been talking about lately has incorporated more and more of this idea of having owner finance people and no buyers merging we're doing this more and more so if you guys haven't tuned in recently to us please go back listen to the podcast watch YouTube videos because everything we've been doing lately has been outside the typical note buying space of the hedge funds these hedge funds are buying and selling assets great but it's hard to play with these assets that are three and four 5% interest rates we want to get into the nines and tens and 11s and a lot of people reach out to me even this past week saying I'm buying these seller finance lists and doing mailers and got zero results yeah and I challenge them to start talking to people more and more I think what we're finding is uh I mean seller finan ISM has been around forever for forever and ever um but uh I what I think we've seen the last year especially is there's more and more people people that are doing seller financing as a business where they're going out and acquiring properties and then selling them on terms maybe they're doing a wrap whatever they're doing but they're doing it more as a business and so a lot of those guys are looking to sell their notes so that they can turn their Capital around and and keep doing it which is perfect for us and we're more than happy to participate with them and help them cash them out but there's been some questions that have come up that we don't know so we're we're trying to figure out how how works and why it works and what we can do to make it better and before we introduce Sean uh Nick's comments on Facebook I don't know how to added this this fee but he's been doing around for five he said notes seller finance has been around for over 500 years thanks Nick and cdy said hi uh Coleman who's a regular on our program so I was this came out I've we've heard about buying partials which we I bought partials I've sold partials and I've heard about this thing talk about this hypo hypothecation versus no collateralization versus pledging not and I said listen I don't know enough about it and as most of the time when we don't know something about it we run a webinar on it so we can learn and you can learn alongside of us um so this came out and what I found was I had a hard time finding an attorney who would a talk about and B knew enough about it that felt confident about it um even at the DME some attorneys have said just not our bread and butter yeah and it was difficult but what do you what we all know about no partials is this Theory out there and not a lot of people are doing it do you think it's because they don't understand it I think that's a big thing um I know that was the case for me for a long time now that I've gotten a better understanding just with the setup that I have it's difficult for me to get a deal done uh but it it makes a lot of sense and especially when you're dealing with your own cash it makes a ton of sense it's a really great way to get some really juicy returns um but again it's still relatively unknown and and a lot of people just don't know how it works or if it works and all that kind of thing so that we're we're hoping to kind of learn more about it ourselves and help other people learn about it as well it's a great strategy um in in most circumstances yeah that's awesome so what we we talk about in our spaces the buying of notes and the seller finds people are creating these things and they want to get their Capital out we've been talking about buying rap notes and then the the headache of it was if we bought the rap note what do you do with the underlying debt how do you handle with the borrower um and how do you take over the power of attorney part in the subject two but these notes are rated you know created at 10 11 12% interest rates I want to get my hands in some of this stuff they acquired the property for a low enough amount that they're not trying to squeeze out every dollar when they're selling a note which is great news for us that means we can Jazz up those returns even more so yeah we're very excited about that and we want to do more but we need to know all that we can so that we can do it correctly yeah absolutely so let's uh without further Ado and let our guest sitting there looking pretty Sean we appreciate thank you for joining us this Friday afternoon thanks for having me guys it's been great so C we always start with a background how did you get first started with doing attorney work as well as doing this type of attorney work which is real specialty good question I mean my back I've been a a realist I've been an attorney 15 years started with a large law firm in Texas I should say I'm a Texas licensed attorney uh in Tex is doing representing title companies Builders developers buyers sellers Banks financial institutions really anything in the financial world in the real estate world after a few years I thought and I got to I'm just going to go out on my own and do this myself soend I ended up starting a title company and I ended up started my own Law Firm that specializes in real estate finance and corporate uh legal work and so uh years ago probably 10 years ago started really getting into this I mean on as you guys noted owner finance has been around a long time subject tw's wraps um it just wasn't understood and to be candid that would had a pretty negative stereotype for a pretty long time um but I've been doing them for at least 10 years and and then sort of that just evolved into note sales and assignments and hypothecs and and you name it and I touch it so to speak good interesting interesting it's it's funny to say all that right because there's very few attorneys who a do this type of work and B understand the work confidently enough to talk about it now we'll preface this with saying not everything we're going to ask today we're going to get an answer on right there are some things that depends on your specific situation and we don't want to try to get into specific deal structures today because it just with everyone on the feed and watching it and everything else and then this will be recorded put on YouTube and it'll be on our podcast so please go to the website and find the information but we want to go over some of the generalities is best we can um even on our private call we've been having our weekly Wednesday call privately the conversation about what the terms mean has been a little bit confusing right we all pretty much know what a note partial is but for those who don't know can you give a kind of a 30 second what is a note partial what happens in that kind of process who takes ownership of the note in that deal yeah I mean and you know this will be sort of the generalized version today as you noted everything is pretty specific and and my answers today are going to be specific to Texas law since that's where I I practice but a note partial is essentially selling what exactly what it sounds like a part of the note you're selling a part of the payments right so if I want if I'm selling 10% of the note and there's 300 payments left then do the math I'm selling those payments in a note partial I'm assigning not only the note and the lean in Texas um but that's the ownership right so that's the point of a part whether you're doing a full sale or a partial sale I'm taking over ownership of those portion of the payments um which is different than a hypothecation which we can chat about here in a few minutes but I'm selling a portion of the payments that are remaining on the on the loan itself and usually in the note in the note purchase world in the partial world you usually see that be from anywhere from three years to five years uh but it just depends and you said this so that was an important thing you said in there you're taking ownership of those payments for those for that amount of time managing the note right so you're take you're taking ownership of it and managing the note and where where's the hypothecation I'm just I'm just merely taking out a loan and using the note as collateral and I'm not taking ownership with the note okay and that's an important distinction because that's that's one of the first things that comes up is like okay who owns that note during that partial time is it you know the original note holder or is it this new partial note holder and you know who's in charge and what happens if there's a default is usually how that question comes out then what yeah I mean and those that's where it starts to get really specific in in any sort of in any actual note sale or assignment of the note in the lean itself right because you get into the types of representations are you know how limited are the representations and warranties in the assignment what's the scale of them is it re is it with recourse is it without recourse so there's a lot of really really specific things that need to occur in a note sale um that that an experienced attorney needs to address or somebody that's it's experienced note sales need to address because you can really tailor them however you however you want yeah and that that's one thing actually so from what I've seen and again I I haven't bought or sold on partials but I've been around them a lot Um this can like it can vary from sale to sale so in this case you're taking over and the new partial owner is in charge of whatever if something goes wrong then they're in charge I've seen it the other way as well where the it flips back to the original note holder in case of default I mean you can kind of tailor it like you said right you can really tailor it just about any way you want I mean there are certain statutory warranties under the Texas business and commerce code that are included unless you disclaim those warranties in an assignment of the node and the lean itself um so outside those statutory warranties which there's only about five uh you can create or disclaim or modify it however you wish and that's where it becomes that's that's where you see a change in the value uh in the purchase price of notes right if I'm if I'm purchasing with a sign with with an Indemnity provision because the assigner or the seller of the note wants an Indemnity provision um if I'm if I'm the buy note buyer the assing or the assign and I want multiple representations and warranties it's going to affect the price of the note and that's why I think note purchases is note sales are so hyp specific that they're going to depend on your transaction because ultimately the representations the warranties are tied to in my opinion the price right so um if you have a unsecured note or if you have a in Texas we have negotiable instruments and we have non-negotiable instruments so I can have a note that's not a negotiable instrument under the Texas business and commerce code those are going to be deeply discounted notes um if it is a negotiable instrument sat under the Texas business and commer code you're probably going to pay a little bit higher on the value of the note so there's so many factors in determining the price to pay for the note and what type of representations warrant you do so when we talk about these no partials I love Nathan pointed out the fact that the ownership is what is everything and a no partial but it's also the negative for a lot of people right they don't want to TA deal with a situation where they have to do the foreclosure process some sellers will buy you out some won't it depends on the structure of the contract and if it don't buy out if it's even if you understand the note space and you've done foreclosures like me and Nathan have done for years if I'm doing with a Roth IRA and I got six grand I buy $6,000 worth of note pars from Nathan and anything started foreclosure and he didn't agree to buy it back I'm in a bad spot now I gota either lend money to my IRA or do some finagling where that becomes a problem and if I'm a note seller and Nathan you know sells to his grandmother who doesn't want to deal with anything he has to either jump in or sell a friend and then he has to jump in it becomes kind of problemsome but some kind some people say listen I want to take the control of it newer investors Ira investors typically want to be more passive and learn that process so we're going to flip the script now and we've heard words such as hypothecation pledging the note collateral assignment are they the same are they different I mean fication is just a is is just a fancy word that people throw out for saying using your Note is collateral for a loan I mean right that that's it's just a fancy way of saying I'm going to use this performing asset this asset that's hopefully not in monetary or non-monetary default and I'm going to go out and get an investor and get an Al loan to use that Noe as collateral and then I'm going to take the cash or the the loan I'm going to start making the payments to the lender and I'm still going to keep ownership of the of the note and I'm going to keep getting payments and you hope that the payments are relatively even right and this traditional hypothecation they're pretty close um but you can have a higher payment on your on your hypothecation or your loan or a lesser payment than the actual income stream that you're bringing in for the note uh so it really just depends on how what you work out with the investor that's going to use your nose collateral would you say hypothecation is similar saying pledging your note and a collateralization and all that is the same it's all really lumped together I mean and it's all it's all simar I mean the concept is the same I mean the underlying concept is that I'm using a performing asset the note as collateral to secure loan that's what I'm doing yeah so when we we talk about the differences right and then the pros are doing hypothecation side of this space is you don't own the note right if Nathan sells to me and I'm a new investor and he doesn't really want to deal with that problem going bad he can sell me the the payment string it could be a year could be 10 years and it's really a loan against the Note versus buying the note and if it goes bad Nathan give replace the note with a different note he can keep paying you while he foreclosing it's really an IOU would that be accurate yeah I mean IOU is a legal term [Laughter] David but no but you're right though in a in a typical hypothecation or a loan you you have a few different ways that they're taken but one of them would be substituting collateral right so I could go out in theory substitute additional collateral or new collateral with the lender on the note that was originally pledged if it ends up being not performing it's what are the pitfalls then like why why doesn't everybody do hypothecation versus just selling a partial it's a I mean at the end of the day right I mean it's all the numbers game right I mean what what is the interest rate that you're going to pay for the the lender the investor it's going to collateralized against your note uh versus what's the sale when you know how much money are you getting up front on the sale um are you keeping the asset I mean it's all boils down to me for me to numbers because legally you can structure out one of them I mean you can collateralize a note you can do a partial note sale um once you get into the n-r of the documents the assignments where you start dealing with representations the warranties that's that's a that's a pretty important thing why you that's one of the reasons you need an attorney but for me it's always a numbers game do you know do you know what the hypothecation of Usery law comes into play here where that you know the the maximum you can charge interest rate does that come and play with the hypothecation where the partials that there isn't any ruling well you do you always have to be conscious of the Usery laws right I mean if you have a note that's you serious then it could be considered a legal um so and certainly in Texas uh you've got to pay attention to that so I would I would even argue that if I go out and I loan you uh I want to I give you an a loan and I collateralize your note and I'm charging 25% interest that could be us serious in my opinion so you have to be conscious of that in any time an interest rate is taken out because don't want um the the the collateralization against the note that brings up another Point as to what's the lender going to ask for right what type of documents are they going to have are they going to have a note for your note right are they going to have a loan agreement and if so what's the interest rate going to be in there so you still have to comply with the Usery laws so you said loan agreement versus note I'm presuming that is a same documentation or is that different no they're different and so I should have said this at the start of the podcast but the presumption here when we when we talk about note sales when we talk about hypothecation um everything that I'm talking about is based on the assumption that there is no separate alone Alan agreement that was done with the underlying note because and I'll give you an example in in the commercial world for uh in the commercial world you have not only notes but you have loan agreements right they're two two different documents and in the loan Agreements are rather restrictive on what you can or cannot do so in the commercial world uh you you will have loan agreements that lay out items like this note can't be sold you know so you have to you have to read those so today for the purposes of this discussion when we're talking about note partials note hypothecation it's on the Assumption for me that there is no separate loan agreement that's been signed with the underlying note it's a standalone note and generally on owner finance transactions wraps um a basic note uh there isn't a separate loan agreement you'll see loan agreements signed up for sure on Commercial transactions and possibly if there's been some sort of construction loan that was taken out um but you don't usually see those in wraps seller finance transactions you don't have a separate awesome so one of the things we wanted to talk about too is in addition to this is the idea and there's a question about tax repercussions I would talk tell you to talk to a CPA about any of the tax part of this um we're going to stay part we're going to stay focused on the legal side of it um but I appreciate your question Susan um when we talk about this stuff too one of the things that me and Nathan came up with this concern is could you technically sell me hypothecation on a note and then hypothecate again with Nathan without me knowing it depends on the underlying agreement right I mean it depends on the note I mean that's why the preparation of the documents is so critically important because what's the documents are going to control the note is going to control right um the assignments going to control so you have to it all goes back to the documents what they say what they allow what they don't allow um because they can be tailored in in a certain way so since we're keeping this in a a highlevel general discussion I will say it's it's going to depend on the documents that are drafted and created and and I will I will add that part of my concern as an attorney has always been um the drafting of the documents I've seen the most ridiculous uh notes I've seen the most ridiculous assignments transfers um that arguably in my opinion aren't even valid under Texas law so uh I would I'm G I'm going to go right back to and I'm not trying to pitch attorneys um for business but because you know I like to help but you got to have a turn this is such a hypers specialty dealing with the Texas business and commerce code dealing with these certain federal laws that you got to have an an attorney draft the underlying note and the assignment um well you know that actually it goes back to what Dave was saying at the beginning like we had a hard time finding somebody that could come out and talk about this it's not just any attorney anybody even the attorney that you're using foreclosures for forclosures I may not know anything about this so it is it is a niche within a niche within a niche like this is it really is I mean and I would I would even say I mean I'm a I'm a big believer in Thomas Jefferson's quote when he said he who knows best knows how little he knows I mean I I don't know everything there is to know about every aspect of law that I practice and so you have to to David's I mean some of it really does depend and you have to stay updated and a breast of all the developments and changes in the laws it's especially in an area like this or in real estate frankly just in general yeah so I AP for the feed I realized that Zoom updated a thing and we can't pop out the chat but some of the questions we came in regarding owned by retirement plans that they have to follow under the udfi hypoc we're going to let the if you have a question about what retirement plans can or can't do I would focus more on the those kind of people out there doing that kind of stuff uh we got Tim her saying sh your a great uh resource uh but her I definitely would focus more on uh the legal side I would definitely talk about that um and I would say that Susan asked a question regarding uh that she does a lot of these things she differences has been the speed of the transaction as well as the cost what do you say you know I'm G ask give you some softball questions too is is anything part of this collateral assignment recorded in the county records that EAS that's e an easy softball there uh any any assignment uh is going to need to be recorded in in the property records because and you not you don't you don't just want the note right you want the assignment of the lean and which usually includes two leans the vendor's lean and in the daa trust so uh yes the assignment has is going to be recorded needs to be signed by the assignor and the assign um and there are other items that you need to check off in the assignment but to go back to our my original point you got to you have to understand what the representations and the warranties are going to be and if you do a hypothecation is there any assignment that's recorded on that uh and a hypothecation uh no because I'm not assigning any sort of the ownership interest in the node and the lean I'm just I'm now there may be a document generally there isn't but there may be a document that the lender or investor wants to file a record uh an Affidavit of some sort but it's not required and on the call we talked about you know protecting the interest in the collateral hypothecation St and we mentioned the fact that someone had talked to me about hey to protect your interest why don't you do some title clouding and just put a second lean there for 100 bucks and I said that sounded good until you said no no I mean you know there's there are leans that you can file under the uh Texas Constitution and then there are also what we call slander of title actions and any attorney worth his uh worth his hourly rate um if I found some $100 bogus second lean file the recor uh I you could rest assured I could probably sue you for slander of title uh if it wasn't valid and I probably would win so uh not generally a good idea it's crazy but I mean this is what's people are trying to find ways around it um what do you suggest to those people who want that Comfort level of it not being double hypothecated um because you can sue them right it's that's a good question David but it's sort of it goes back to I've I've made this statement for God it be probably 15 years that I've been an attorney you the paper that you have the document the contract the assignment the the it's always only worth the paper it's written on unless you're willing to sue right I mean unless I'm willing to do something about it it's not worth anything so um to your point when you get in this area the note sales the hypothecation you just have to be comfortable with there is risk associated with this area um and you got to be comfortable with knowing that okay this is the document I have this is what it says an attorney drafted it worst case I can sue over it I have several causes of action that I might be able to sue to enforce and I'll do it um but again the paper's only it's only worth the paper it's written on unless I'm willing to do something about it and this this goes back to we we say this so many times and over and over and over again it's all about relationships you know know know your seller know your buyer uh when you've got that kind of a pre-existing relationship man that's G to help so many things the biggest issue that that I see that's a hopefully this doesn't go off topic but it's it's frankly it's the lack of diligence by uh by note buyers and when they come to me they're like but God gez Sean I want to I want to sue this person I want to sue this person and you know then I sort of asked them some basic questions like when they talk about the you know um did you did the note have a promise did you look at the underlying note was it signed by the debtor you know did it have clear terms of repayment right was it demand or was it a fixed time did it have a usurious interest rate did was it an LLC did you check the LLC to if it's register if it's registered to do business in the state of Texas if not it can't do business in the state of Texas so uh was it a homestead property of the underlying note if so in Texas the note has to be signed by the husband and the wife if they're married and the deed of trust right these are just diligent like sort of common basic diligence items that need to be done by any note buyer or S uh in Texas at least well really us I would say I didn't know Texas had the the married couple clause in there that's good to know it's uh it's a unique thing because right you you have the this in property how property is characterized separate property versus community property Texas is a community property state right okay um but that's not what necessitates a a a spouse signing off on any sort of document Data Trust or note um the Data Trust certainly it's the fact that we have we have What's called the homestead right so you're doing it to perfect the homestead interest in the property you don't want later down the road that the original borrower on the Note defaults on the note or files bankruptcy you get into a bankruptcy and there's a challenge over the validity of the note and you get a creative attorney that says hey by the way B didn't sign off on this deed of trust therefore the lean s is invalid and the homestead interest isn't protected so or perfected so uh that's what necess the homestead uh concept is what requires the spouse to sign off I knew that in other states I didn't know Texas interesting so one of the ways we thought about doing this and you know I didn't pitch this before to you is what to to protect the people the risk I find with the hypothecation is a due diligence making sure that if you bought this lean and you took it back you couldn't foreclose on it the prop is worth of value and everything else but also the fact of protecting it from a buyer perspective and my thoughts were put the note the mortgage the whole Cloud file as well as assignment of mortgage and a laun in escrow with the attorney or servicer to protect it from being resold and having escro instructions to protect it would that help protect from hypothecating multiple people yeah I mean you know I I in theory yes right but I mean the it goes back to my statement a few SEC a few minutes ago it's only worth the paper it's written on unless you will to do something right because putting these documents in escrow at a title company or your attorney's office or the service or may not necessarily stop someone from going and trying to sell it again or hypothecate again you know against it or collateralized against the note itself so um while that all helps I'm not discouraging having escrow instructions I'm not discouraging having any of that I'm just what I'm saying is it's not going to stop really somebody unless that person has integrity and they go well gez the document I signed says I can't do XYZ then I'm not going to do XYZ so to Nathan's point it's all about relationships it's about who you know you want to do business with people that are going to respect the terms of your agreement um because if they don't respect the terms of the agreement what do you do you're going to have to sue them right and that's where attorneys like me just we just love it right we we love we love people that don't have integrity and don't follow the terms of th that's your bread and butter so let's let's get into the fact of you know um we want to write these agreements up right and we want to buy a lot of these kind of notes right how can we do we have to work with attorney that's licensed in that state or can we work with attorney such as yourself to draft the general documents in purchasing this kind of asset and the escort instructions that's that is a great question I mean most attorneys are licensed as attorneys in their respective States right so I'm a Texas licensed attorney uh one of my business partners he's a Texas and Georgia licensed attorney so for me I can draft documents in Texas right um could I in theory draft a general document yes but um the concern for attorneys is that it what passes in Texas may not pass in California uh and that could be considered malpractice so you know as as capable as I think I am even in other states I would tell somebody hey look if you're G to go buy a note in California use a California attorney if you're going to go to Nebraska use a Nebraska Attorney because I can tell you there are a lot of attorneys that come to Texas uh and try to draft these sort of General documents in Texas and I look at them and go gez I mean what on Earth and it's not even close because Texas is extremely strict um and Texas is one of the more complex States legally that's why our bar exam is one of the most difficult in the country because it's the laws are complex here so you need to as an attorney you need to make sure you're not committing malpractice so if you can't anybody that's on this call I can do what you need in Texas um but you would be best suited getting an attorney outside of Texas for whatever state wherever if the note if the the collateral is in Nebraska then you probably want a Nebraska Attorney to go look at it if you're hypo say is there a way to find attorneys like yourself is there a category that we should be looking up is there a network uh you know I've been asked that before and to my knowledge there is not um there's no database that I've ever found uh there's no resource that I'm aware of as an attorney that would allow uh any group of individuals to go find attorneys in other states and and I've not only been asked in this context I've been asked in the creative financing con context I mean it's like every week I mean every week I'm getting a phone call hey gez Sean you're great in Texas but can can you do something in Florida for me no I can't draft a deed for you in Florida would you know anybody NOP I sure don't right because it's such a hyper specific sphere this the note sales the apothics creative financing subt wraps right I mean in every law is different I mean Texas it's more difficult to do a WAP transaction and a subject to transaction than it is in Arizona I mean Arizona it's easy right and here got a few additional laws you got to follow so unfortunately some like Texas you know land contracts are no no in Texas right and a lot of the sub twos in the r notes are created have come across as land contracts and cfds um that's just a example of Texas law that you can't create land contracts uh in protection of everything when we talk about this stuff um do you recommend someone to get a basic understanding of notes the legal a consultation with someone like yourself what is the first step to someone who says I want to buy a hypothecation or sell one and I can I draft it and would you represent both parties if both parties wanted to use you great questions is part of that um my first the first suggestion I always give to anybody is you go find an expert um in your field like I I mean I know for example that um you know USA home Partners Nick Nick is a one of the ones we deal with he he does a heck of a lot of business in Texas right he's a great resource so if you're going to do something in Texas says go find somebody that's done the note sales go find the investor that does it I mean you guys New Jersey I don't I don't know anybody in New Jersey I know you're an expert there y right so go find somebody like yourself that's a resource to go ask the question be you know let them be your Mentor the second thing I would say was to your point you you you got to have an attorney that knows what they're doing in this sphere right because I cannot stress enough how bad a poorly drafted note or a poorly drafted assignment could impact the validity could impact the sale monetarily it's a big deal right I mean if somebody drafts a note and it's not considered a negotiable instrument in Texas and it's considered a non-negotiable notee in Texas you can just rest assured the value of that note is going to drop by an exponential amount right so the second piece of the advice I would give is to is to find an attorney that you can go have a quick consultation with yes it might cost you a few hundred bucks but but I'll tell you what it's worth the three four 500 bucks that you may pay now because you're going to save that later you know getting sued for $15,000 because you signed a a full recourse note and you had no idea what that was right um or a non-recourse so that my second suggestion would be to partner up with an attorney and then the third is frankly you just you just got to jump in at some and it's to be part of part of groups like this listen to podcasts like this right you guys do a great job of of of talking to people and help educating and and it's just at at some point in time then you just you just Dive Right In yeah and my my experience is that most things are fixable if if there's some kind of like a the note wasn't written correctly or something like that or for example this is years ago but I I bought land contracts in Texas and then just converted them over to a of trust so it's fixable it's not necessarily easy it's not necessarily cheap but you can do it you can fix I've always said you can fix just about anything yeah but to your point aan how much does that fixing cost you right so you know if you spend $500 on the front end to make sure it's done right then you might save yourself 50,000 on the back end um even though it's fixable uh it's just a some people I think are afraid to put up money at at first and that is a bit terrifying but to me it's worth it especially in this area yeah some people were asking for your contact information uh in the chat we have a link to just fill out it's a form on our website you'll get sh information uh regarding his partner in G in Georgia just fill the form out and he'll reach out to you and follow up with any kind of questions you got um when we buy these kind of pathic and um another softball question buy buy one year can I go buy a second year of another six grand next come around can I keep doing it on the same note can you keep buying partials or can you keep loaning out keep hypothecating loaning out yeah on the same note can I hypothecate once and do it again and again yeah right so some people are saying well if I do sixth grade now I I'm done no you can do as many times you want right um but we really focus on the fact that this hypothecation versus this part note partials it depends on what kind of person you are what you're looking for and then make sure you have the attorney in place to review the collateral as well as review the document that you're signing regarding the transaction um both part items need to be reviewed because if something happens you make sure you're got you're backed up um and understand what a partial is in regarding to the schedule if the buyer pays off or what not where hypothecation if the borrower pays off the original debt you may still have the hypothecation going because if your agreement doesn't say anything about it they may just keep borrowing your money for X period of time yeah I mean I think and I think to your point David is is part of the thought process has to be what am I doing this for right am I doing this to am I doing it to scale my business and go buy more notes at what point do I stop buying notes at what point do I stop collateralizing against notes am I am I collateralizing against my performing notes so I can go buy 10 more notes right so what's your future plan so I would encourage any any newer investor even seasoned investor come up with a one-year plan a threeyear plan and a fiveyear plan on what you want this business to be because that's going to dictate whether you sell notes or hypothecate notes right I mean that's how you SC and generally both of them can allow you to scale your business um but you got to have an idea of where you're going in order to make decisions now my we had one question regarding what happened if the borrower fore gets foreclosed on with the seller and didn't tell you about it is there any way to get notice that the Foreclosure is happening uh well that's a good question loaded question in um and that if you have if I'm in the partial note world yeah I and there's an assignment of Interest even if it's 10% but there's an assignment of interest in the note in the D to trust well then now I have an ownership of that note so the Foreclosure notice in theory I should be put on notice that it's going to be foreclosed on the hypothecation since nothing's filed of record that's that's a little bit more problematic and do you recommend doing hypothecation on rap notes versus partials are selling a WAP note because of the issue of the the original borrower with the Pay Power of Attorney situation we're feeling that the hypothecation is probably a better suited thing because you don't want to transfer that note over and have to deal with the original rap subject two owner kind of thing yeah I don't you know I don't know I mean I I don't I to me there's no really no difference legally in my opinion as to what what you know what may happen I mean I suppose they kind of a little it kind of is but it like I said at the start it's a numbers game in my opinion right it's how much do you want now right what is your business going to be like how much would the note be sold for versus how much can you you know get as a loan from the investor on your performing asset so to me I think you got to decide numbers first then because again if you have a good attorney either one that can can be structured in a way that you're protected um so I think you have to decide first uh from a number standpoint what decision you want to make it and go from there so question was why is negotiability important I think it's the fact of figuring out what you as a buyer or you as a seller want in the note in the deal to be noticed of and make sure you cover everything um it's easy to say cover everything you don't know what everything is um but as Nathan and I started with a notes space we didn't know what a Lou was yeah and you kind of learn you make some mistakes and you ask your attorney is there anything I'm missing in this protection process and and they're going to do the best to protect you but there's no foolproof plan that that things just come up um people follow BK and change ownerships and all kind of stuff um but yes so when we do this kind of stuff I was gonna sorry to interrupt D I was wondering wondering if that question for you uh they meant negotiability as in negotiating on the Note sale or if they meant negotiability as in the sense in the legal sense is it a negotiable note or a non-negotiable note Stephen if you can comment back on there I I'll watch the feed for it um if there's any question about that um but yeah so I want to make sure people understand when we're buying and selling notes we're not going to buy at we call Par um Sean Steve said legal sense so yeah that's always negotiable whatever agreement me and Nathan have is what we agree on yeah yeah and I think um I think Stephen I think it was his name I mean in Texas so um in the legal sense um that is a that is a pretty big deal under the under the section 3.21 of the Texas business and commerce code in order for it to be considered a negotiable instrument um it's got to be uh money to be paid to the pay or it's got to be payable for a certain amount of time and there can't be any other act or undertaking outside the payment of of the money right so if you don't satisfy the Texas business and commerce code then it's not considered a negotiable instrument if it's not a negotiable instrument then it's considered a non-negotiable note um a non negotiable note is then subject to common law rules versus statutory law right so so when you're in the non-negotiable note world the prices of those notes are significantly significantly Less in my personal opinion I wouldn't be purchasing non-negotiable notes not really ever so but that was a really good question stepen so is that like a would that be like a HELOC no I mean that's that's probably still I mean probably that's still neg it would be I'll give you an example of what a non-negotiable note would be um you got the you've got the promise to pay right you've got the borrower you got the lender and then in the note term you have it is no term at all right so there's no 30 years there's no 10 years there's no five years there's no balloon payment right there's no maturity date it's just this indefinite period of time that would be considered a non-negotiable notee I'll give you another example if you want another one um I've seen some investors put in these notes for um they put in these notes on like rehab loans and things of that well they'll put in the note they'll say uh you know you it's G on pay off it's GNA you got the interest rate you've got you know whatever the maturity date and then they say in the maturity date you know uh owner to all or borrower uh to assign interest in its LLC in connection with uh this note is part of its payment right like I'm going to acquire an equitable interest in an LLC as the lender so that's an act that's an act outside of the promise of money so that would arguably make that note non-negotiable so that's these are Concepts that're really boring but for me they're fun which is why I need an attorney to look at them so a couple quick things here I I want to remind everyone it' be side comment real quick uh the DME recordings we do have them on our website so those who did not or did a 10 and want to rewatch the whole event available on our website um going back to it also is that when we're buying these notes jonath had a question regard can you self-direct your IRA to buy a hypothecation note in your personaly mean sound like to me he's trying to hypothecate to himself in I would say direct yourself to your custodians stuff like that um I'm gon to say that's probably self-dealing um but I'm not going to be an attorney on that play but uh I would I would tend to agree with you David I mean you you you get you got to go back to your the custodian on the account you got to go back to the documents that you that you executed with your IRA whichever Quest whatever company it is yeah you just can't self deal that's the worry I have with that is that if you're gonna borrow money from yourself at 14% it's uh kind of dangerous right question probably not a good question risky so I wanted to for those who are looking to sell these things or buy these things understand we're not going to buy it par which is a definition word that we want to make sure you understand it means 100% a upb that if you have a loan at 12% we're going to ask for Discount because of Time Value money I'll put in the chat also a link to a little chart that we put together kind of get an understanding of if you're creating these notes be sure you don't write these notes at four five six seven eight% returns uh interest rates because you literally can't um sell them um we we have to discount so much the chart I put in the chat shows you that kind of idea so on top of making sure the interest ratees high enough the term if you can get a lower that's a great thing to get the most out of your note but also make sure the collateral and the actual origination the note is legally clear which means we've had webinars on this make sure your armal low and underwriting is being done and if you creating this stuff make sure you follow the laws of DOD Frank especially if there's an owner occupant that you are F account we can't buy them we literally can't buy them because it makes it really difficult for us to foreclose if we have to so you got to be sure you're doing that so one maybe slight clarification we may be able to buy them but we'd have to discount it even further because then we're gonna have to fix it yes and again like we said that cost time and money so even if we could buy it it's going to be at a lower price and if you're willing to take the discount then come talk to us but yep just realize that that's that's a pretty major factor yeah it is so the charts a big numbers game right that I put together for you guys I saw Alon day listed about six notes all under 5% or six% and I listen I'm going to buy these things at like 40 cents on a dollar just not possible to get 11% yield we're buying on yield we're discounting on the yield feature and saying what can we buy it at it just doesn't make sense for you guys because banks are creating notes at seven why are you creating at five or six it just doesn't make sense and I get the fact you're worri about LTV that the byproduct are concerns because really first we're concerned about what goes in our pocket LTV is a secondary feature um the banks yeah your borrower would have went to a bank if he could could they couldn't so make sure that you're chargeing the interest rate that matches that it's try it's like trying to compete with Walmart you're going to lose just don't do it yeah make sure you charge a little more interest rate because that borrower could not go to the bank that's the feature is that borrower if you're writing 5% notes the borrower should been able to go to the bank and get it if they couldn't I'm gonna say the words take advantage of but so Sean Sean what's what's the uh what's the interest rate that would be considered usus in Texas right now uh anything over 18% so so you've got some leeway there so if you want to write Al loone at 12% go for it you're you're going to be fine uh we're going to be way more likely to buy that and you're happy with the price we're and we could hypothecate at 15 right or 16 or 17 up to 18 to makes sense for us right now we're doing a couple in Virginia right now at 17 I just got to make sure the your this law protects me okay on that and then find a sha out in Virginia to help me out in on the other side of it so and I hope that gentleman's listening right now um because we're looking to close that before the 15th a bunch of uh hypothecation on that so we do these webinars not only to teach you guys but to learn ourselves yeah so so um we hope you guys continue to join us and continue to follow along as we bridge the gap between no buyers and no sellers um we've been doing this for over 15 almost I've been do for 13 Nathan's been 15 years but we want to bring people on likees on on if you have any additional question before we close up here please put in the chat this again will be recorded we'll be on YouTube we'll be on our podcast uh it'll also be on LinkedIn Facebook on the recording so I want to make sure if you have any questions for Sean click the link fill out the form and we'll get over to Shan to answer specific questions on any kind of specific deals um but keep all attorney um all accounting CPA tax things to those kind of people and custodians so um we're almost at the top of the hour I'll let Nathan uh finalize us and uh we'll let the audience go so just curious Sean we ask this to everybody who's on we're always looking to the Future we're always trying to figure out you know trying to see what's coming down the pipe uh it with your experience and what you've deals that you've been working on more lately do you see any kind of patterns do you see anything changing coming up in the next six 12 months yeah I mean that's a it's a good question in that uh I think it's going to get and and has been and it's only going to get better frankly for for investors right anybody in the creative Finance World wraps sub tws uh anybody in the note buying world I mean when you see these interest rates Rising um people are forced to get more creative uh but looks like you know you and David have been doing this a long time you know so you you're just is just what you do but but for a lot of people even maybe some on this on this on this call it's they've been forced to get in there because they started thinking well there's other ways I there's other ways I can make money how am I going to figure that out and with Rising interest rates and you saw this in the 90s a bit um with Rising interest rates you see an uptick in the amount of creative Finance world I can tell you personally through my title company we have closed a significant more of subject to wrap seller finance transactions in the last year um that we did probably the last three years and it's because of the change in the real estate market so I mean honestly I'm pretty excited about it so and I'm excited that now creative financing um I've been on this Crusade uh to dispel the rumors and the negative stereotypes for creative financing for years and I'm F I'm excited where I feel like it's finally getting to a place where even real estate agents are going you know what it ain't that bad right yeah um there's people with Integrity in this business and and I want to do business with that person um so that's where I see the market going I think it's it's only going to increase absolutely interesting so I I'll answer Sean uh Susan's question real quick regarding does note prices change if you have a season or non-season notes with or without third party Services um yes um seizing notes have a little more risk to it we want to show proof of ability to pay even though they went through the underwriting process um I would say that season notes definitely thirdparty servicers we encourage you to use third party servicers if you're not and you're self-servicing make sure you file all the rules required meaning a monthly statement in the year stuff but yes there's a there's a slight discount on that um and also if you're writing land contract versus mortgages that's another Factor uh you can use the chart to see what the differences are um any note buyer me and Nathan are not together we're do we have different companies we just enjoy talking to each other um we price things differently so I would encourage you to reach out um I I believe our feed you can go to the website and reach out to me and Nathan anytime uh and ask some specific questions so um Sean it was a pleasure having you on I think uh our phone call initially came across as both of us saying I'm not sure if this going to fit and end up being a perfect fit I I I couldn't have found a better guest for us to join in and and explain the differences and'll help uh I hope that people reach out to you Sean especially in Texas I know nick uh is a big fan of you and to worry about your WRA notes and your and stuff like that owner finance subject twos reach out to Sean he's a great attorney down Texas um and if you're doing hypothecs which most notes I think is 80% of Orin notes owner finance notes is in Texas um we'll buy owner finance hypothecs all day long uh so feel free to reach out to us and uh ask us questions I appreciate you guys joining in we're going to disconnect from everyone live and hold on to show on for a few minutes we appreciate everyone jumping in for the Friday afternoon thank you take care everyone.