Structure a Note + Sell Highest Price | Real Estate Notes Show

Episode: Structure a Note + Sell Highest Price w/ Nick Legamaro ‪@nickthenoteguyTX‬ Full Dave's Goals and Plans: - We've pivoted to focus on Bank Virginia notes after the last month - We're bridging the gap between note originators and note buyers by funding originators out so they can keep going - We want to clarify to originators what kind of paper they're creating and what gotchas note buyers look for - We're slowly learning what comes together with originating notes so we can buy paper and ensure it's clean Nathan's Goals and Plans: - The note investing business allows you to pivot fairly easily and go in many different directions - We've focused on bank originated clean paper for 12+ years based on running numbers - We're getting back into the seller finance world after learning about the massive opportunity there - We need originators to structure notes correctly so they can refinance or sell without scaring away buyers Key Recommendations: - Structure notes from the end backwards - understand what the market will bear before creating a note to avoid fire sales - Create bank-quality notes using proper documentation and underwriting from day one - Know your propensity for risk and understand what constitutes a solid return for your investment profile - Implement best business practices regardless of whether you plan to hold or sell the note Topics Discussed: - The $30 billion annual seller finance origination market and opportunity - Proper note structuring and creation at a bank-quality level - Connecting originators with note buyers in a fragmented industry - Historical context: 2007-2008 crisis experience and current rate environment - Why institutional buyers (Fortune 500, hedge funds, private equity) pay premiums for quality notes Guest Insights: - Less than 5% of originators in the $30 billion market create more than 4 notes per year - highly fragmented - Most note creators don't properly structure notes at bank quality level to maximize value - Built and sold a seller financing business to a 100-year-old federally chartered bank in 2018 after 6 years - Banks and institutional buyers don't want to own property - they want consistent cash flow from quality notes - Created USA Note Pro and Creative Deal Maker to teach people how to create bank-quality notes well I think on the origination side 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 a structured and look at it is it in the event that you do okay right this is on the crating side right so you want to make sure you do it so you don't have to 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 if the indicative bid be on the note if it's created this way and and it's underwritten from the rmo and everything's 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 uh definition of risk and and some people and a lot of people have a different opinion opinion on what a solid return is okay [Music] May everyone Dave putz here from jkp Holdings alongside me as a lead Mr Nathan Turner hello hello hello it's been a crazy uh time uh New Year's has a purchase and we're starting out 2023 in a little bit different way I think a lot of our angles have changed 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 reduced to Bank Virginia notes yeah it's that'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 looked for was the opportunity to just invest and make money on our money um I spoke in Korea 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 pick some 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 no it's my the beginning of my no career was creating notes back in Columbus Ohio and it was I actually really like 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 I 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 I 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 in the fact that when we here is 30 billion originated it's nuts yeah um yeah everyone's jumping in here a billion like not million billion dollars of seller finance origin in one year yeah yeah so that's huge the 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 Summer Finance doesn't have a good connection to the world of note buyers and what we're realizing is 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 copy do that so we have two groups of people joining us today um unfortunately Mark had an emergency hey 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 reps 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 gotchas that no buyers look for so you can refi out for sorry 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 you know I 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 purposes as node investors uh we need we we focus on different things and we need to have things lined up the right way uh 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'd 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 the most gentlemen paper right 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 Marcus will be here 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 met years ago didn't realize I did um and no conference um but it it's amazing where the connections come back when we got a phone call and you start talking about these things we're in the same game as Nick is which is really cool and their 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 we're gonna be here you can sell to us and refinance everything so Nick I appreciate you jumping on this morning um and spending some time with us awesome and your knowledge and experience not just 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 did 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 to listen to the old guys right and the old guys were around when the crap hit the fan in 2007 2008.

I speak a lot and I was at I was at a uh an event and there's maybe 300 people and I I asked the question I go hey who was around raise your hand if you were around into doing real estate not even notes just real estate in 2007 and you can 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 a 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 got to read this to you because you guys will not believe this if I just said I don't 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 the the the yield was 14 holy cow 14 can't make it up and look at it right here are you kidding me he goes that was when I didn't have any money when I uh because when it used to be 18 he said yeah 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 a time and you look at what mortgage rates have traditionally done this is this is only High relative to what we've been experiencing literally the last five or six years because in 2007 2007 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 a pivots 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 middle right so the nodes I started a company in 2012 my partner John Montero the company called right likes capital okay and the whole point that we did we built that business to sell and not from not that we knew that we were going to sell it but we knew that if we used and 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 it to 2018 we actually end up this was a seller financing business okay it was creating creating nodes from scratch buying properties fixing them selling them to owner finance buyers that were not a 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 literally 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 uh 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 did do what we did we had to know I had a pretty good idea of what we were doing and so as a result of that brings us to where we are to now today is where we have with the USA no Pro and the creative viewmaker 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 dollar market in Industry that you do 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 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 five percent of them do more than four notes a year yeah okay so it's a very fragmented very fragmented business in 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 very few that I know of at least that tell you how to structure it at a at a bank quality level so you 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 doesn't 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 and 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 no 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 they wouldn't lend it they just want to live there's going to be a lender they just want to control now there's people that say well I can fix anything so bring it on cool there's a place for them in the world too but I'm gonna 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 won't 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 you know I always get asked how we just gotten 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 amortization 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 I want to own I want to own notes relative to single family residences but I wouldn't but if it's but I don't have a problem owning assets that is commercial or multi-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 selling 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 it wasn't zoom and and Facebook live and stuff like we're doing right now in YouTube to really educate people on how to prevent from making mistakes that's why I'm so animate 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 close back then didn't have education and like we have it today and I had on property and I I bought it I didn't buy it they 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 and I said fine so I drove by the house and I go oh that's what a 30 that's what a 25 000 house looks like remember this is a long time ago right you can't at this point at a you know 25 000 you know is a hundred thousand dollar house it's a little it was a little two bedroom one bath POS 700 square foot house you know and it's and that's what you would see today and this was in Dallas it was what you'd see today and maybe eighty thousand dollars right if you can even find any thousand dollar house now and so I was driving down the street and I saw a sign I said Ben De Casa and I know I know advantage to be dangerous so I said I call them 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 fact or whatever you want to call it talk about the 30 billion dollar market but you know what else there is about 60 to 70 percent of the population can't even go down and qualify for a bank account right okay so when you think about this and this one sort of drives me a little banana 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 and get a bank loan okay and less than five percent 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 and 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 when I 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 two year when we can get into this in here the deal structuring yes is where the value comes in okay you know what people say that you make your money when you buy them when you buy the asset well well that might be true in a traditional real estate model right but in the note side it's not bad at all it's how you structured the note yeah how you stack the collateral file are you 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 rmolo all these little things yeah are the important character characteristics that add up to uh uh a premium note that like Banks do and I always say it and then I'll let you guys continue on is that what would a bank do correct that's the first thing I asked the question what would a bank do okay would a bank do a contract for Dean no why would you need people could do contractor needs all the time I'm not saying there's anything wrong with the contract for Dean I'm just saying Banks don't do contract for Deeds right and why is that because they don't need to and they don't know they're perfectly protected if they write the promissory 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 and they might not check all of the boxes that a traditional lender needs their DTI might be a little bit offered they may have only been invested income by the way those who don't know pti's debt yeah sorry your credit their credit score might be you know 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 the glass the average declined credit score decline credit score was 708.

wow decline well the average I mean are you kidding me yeah I mean I mean 708 is a good credit score yeah I mean I'm just telling you I'm my credit score is not 708. I use it I leverage it it goes up 50 points down 25 up to 75 but that's just the way I but I that's why 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 use it but I think a lot of people when they create these notes they think from the borrower's point of view and they try kind of I need to get a borrow in place and I write notes and originate but they don't realize the the other side of the 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 gonna have a heartache going to foreclosure because you a maybe you originate too many loans for the year or you didn't hire a license originator yeah maybe you didn't underwrite it at all because you did a land contract not realizing that you need to underwrite land contract if the borrower's still in the home so when you use these kind of things now underwriter granted if you're experienced you're going to write yourself however 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 into that point well and they meant to 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 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 more lean mortgages okay and the reason why we do it is to what you're doing what we're seeing because we're thinking about it from the note buyers 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 is it what is it for those who may not know what that means so discount is the there's a balance of a loan either an origination or current balance and we're going to pay less for that I give the example like a lottery right when the lottery is a billion dollars you don't get a billion you get a half a billion right so you're gonna get a discount based on the unpaid balance because of the fact you're getting money now versus later so the discount off of what the value of Time Value money that's one but there's other things too right there's how uh what is the states there's the states there's the interest rate we're getting told that but what start first off origin good paper solid paper right you know running a piece of paper on a nap you know random napkin what the terms are for a borrower doesn't always equate to a good solid syllable node not saying if you never sell it it's not good but if you're going 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 they're 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 so they can file it they can record it they can do everything from a legal date but let me tell you something I could give two riffs 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 address in your promissory notes okay yeah servicing is a lender a title that you hire from a title company an attorney that crafts it are they even gonna 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 well let me tell you something and service yourself but those who are getting into notes were one I recommend getting into server serve because 100 if you do things wrong you violate federal law well that's that's a whole other issue of itself but if for purpose Apple you say all the self-service are great so that's fine well that affects the yield when you go to buy it right so that's that's a huge discount that you're going to have to eat at some point in time if you decide to sell in in liquid a but here's the other thing I see a lot of times when people do it they'll go in and they'll put in the dollar amount of the Servicing for example twenty dollars twenty five dollars thirty four whatever it is okay well let me ask you a question do you think 10 years from now servicing is going to be twenty dollars a file no no no you think 15 years is going to be 30.

for all we know with inflation it could be a hundred damn dollars a a month maybe 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 paid 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 it's really really critical to make sure that you're writing promissory notes 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 when 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're gonna 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 don't want anything we ran through recently it's a servicing question yeah so those people are reaching notes yeah I'll let you share like what we're running to 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 this is scary but then the question is they have a monthly payment of say 650 and that 650 they'll just record it as 650 every month coming in they've they haven't even touched amortization 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 dollar that could be a huge mess and like let's say that the payment actually uh according to the terms of the of them of the loan are actually 648 dollars but you're collecting 650 well that affects what the principal balance is over time so you can track it yourself but unless you have specific software for notes not for rentals you're you're not going to have accurate numbers.com I get I heard I I never heard of that until like a couple of weeks on I go what the Yeah Yeah so when I asked for pay history they should send me a list of dates or another thing they were doing is they've got they'll collect uh principal and interest and tax insurance but then they don't separate it out so they'll have you know a 700 payment well 650 of that is the principal and interest but then they were attributing the extra fifty dollars to the node as well no no no no no no that's let me let me let me ask you insurance is a separate thing this is really important and the max will under 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 to 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 call the underwriter to come in and do something else and guess who pays for that but 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 if I'm going to have the borrowers are going to be responsible for that guess what I'm gonna do I'm gonna find the best underwriter to do my underwriting I'm gonna find the best servicer the service my notes I'm going to 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 they 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 at 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 haven't want to sell it you get maximum value to what you're referring to earlier absolutely so let's back up for a second right we have different people out there part of our uh watching right now Nick you don't do any kind of reps right you strictly stick with seller finance notes I only I only I technically I only do raps 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 who knows raps is kind of a new phrase I've heard of it it's not what I my understanding Jersey doesn't allow it um but it's interesting so when you create this rap what are some of the documents you need to have so if it default you can prove the case that your new borrower default and you can foreclose on something yeah and the fact that what do you need to get from the original borrower to make that wrap successful yeah so we don't 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 lien on the property and I leaned it by 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 sale 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 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 a hundred thousand dollar first lean in place a seller for whatever reason we won't get the wise decide to give me a property that may be worth two hundred thousand I take over the hundred thousand dollar first lien and then I create a secondary hundred thousand dollar by combine the other hundred to make a two hundred thousand dollar note for a new borrower I'm gonna pay the first lien continuously or pay it off either way and then I will make the proceed of a hundred thousand dollar gain on that situation right the transfer D 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 gonna need stuff like power of Attorneys at least limited let's back a power training what is the 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 to which means an existing debt of some type okay and you need to be able to communicate 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 an escrow 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 able to wrap so we have to disclose that you have to write the documents to your buyer and let them know that there again it's done through the the attorneys that are creating the lender documents on our site we do not lit not usually keep the wrap Mortgage in place very long okay for example we buy a lot of stuff using hard money or private money okay so if I let's just say let's do uh uh uh a quick analogy I buy it for I uh I buy it I'm all in it for a hundred and fifty thousand dollars okay minute 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 lien holder okay well the only way they're going to release that lien for that money is to get paid in full right more than unless you're doing a lot a whole other 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 rap documents first okay so it's almost like buying it subject to to the existing 150 000 hard money loan in the wrap documents but we already know what we're going to do once that node is created with our route 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 to pay off the seller and get the lien released so that's what a wrap 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 what we'll do sometimes I don't want to get off in the Weeds on that but if we get seller to say that seller carrying that to us right and we might do a uh what's called a substitution of collateral right so it lets me go do whatever I want on the wrap 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 I advanced stuff I mean for most people you know the the strategies are what I think where we're at right now where I think 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 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 could stay in the it can stay as much of a part of the deal look you don't have to sell a hundred percent of the whole no right or the whole transaction you can create a first and a second sell the first keep second or you can sell a partial right I mean yeah 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 lien so when I go to sell the first lien and I have it written at a 70 for example investment the value versus a 90 I don't have to Discount as much because the note buyer is in a is in much more favorable risk position I wanted to just from what I've been we've been told the clerics is the wrong what we're hearing is you need to get a power of attorney to allow the new 72 buyer to speak to the first lien 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 yeah and I would say this if that's if you if you're going to start because here's the way I look at it I'm all about disclosure I am not the I I don't teach or educate on subject two okay there's a lot of people out there that do and do a great job at 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 nodes 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 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 sub 2 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 there's all questions coming in we're definitely we're right now live on Facebook LinkedIn I need Twitter as well so um so one of the question came in was uh from Cindy um but I 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 they have the option of calling the option of calling you're right yes how do you avoid that option of call that the note Harry has in it that um as the question that says get around the original letter call alone since most visiting loans are not assumable I don't know yeah um um 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 have ever talked to you I don't think there's any uh I I don't know of anything but he's got the idea the IRS has the deadline after foreclosure to redeem the property exactly but they've never heard of it happening no it's like yeah you know I'm in a thousand year flood flood zone and I guess yeah area could flood but it hasn't ever flooded and it could especially came up from John was that you know does the power attorney be in the state of him or the state of the bar or where the property is located you know that's going to be and I wouldn't I wouldn't even attempt to answer that because there's like our attorneys will create all that documentation relative to that type of transaction so if it's if it's an if you're trying to acquire something with the sub 2 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 counsel that tells that that has you do it I would never go and try to do any of that on my own and I wouldn't trust my so I'll do it and every State's different yeah every State's different we've got judicial you've got non-judicial you have different state laws you got usually this you got there's all kinds of things that could impact that and so in in my experience I'm up in Canada so I every once in a while I have it where I'm selling property and uh what I've run into is that they require a U.S 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 behalf and so I issue it from Canada they record it in the state where that property is uh I'm gonna guess I know if that helps but I'm gonna guess that it's where the property's located because that's my guess as well and you're getting the power returning from the borrower to the back in their behalf yeah that's what I 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 don't let somebody like Max do it yep I'm not going to service my notes I'm going to let somebody like FCI or Madison or nams or August REI do it okay I'm not going to create my own promissory 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 going to build a deal I'm going to make the deal work under those constraints or I'm not going to do it I do the 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 make it any more difficult than that it just isn't you know find it years here right we created this note we have our power of attorney for wraps and we have our idea we're going to use a servicer because it makes sense right so we're going to talk about how to sell this note for the top dollar what are things that the originator who maybe regime 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 quotes 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 in you guys are note buyers let's look at the no buyers perspective and working backwards what if what's the probably the number one thing that you're looking for relative to buying a note property right property itself and my return look at the asset that's number one I had the collateral file yeah right I have the the um the numbers right yeah that's my return yeah what's your return right so your yield right so if you're if you are in you know you're let's just say you're trying to find get a uh a 10 yield okay okay well and 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 a 800 credit score yeah and it's at a 50 LTV and a 40 ITV you're not taking a three percent yield am I correct that's correct never on a million years so let's talk about things that we don't care about no buyers we talked about the last webinar in December I don't care the borrower is a local handyman don't care I don't care that I don't when the borrower defaulted what happened or 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 to call into our our world right and then note it comes as the five big numbers right we have our balance of a loan we have our interest rate we have our term we have our pen I and a balloon if there's anything right and how you stagger that if you have a balloon in two months or uh 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 so those are Paramount interest rates obviously super important when you write the note because what we're seeing you'll see in this now okay I would never write I would never write an interest rate that low right and here's the reason because rates 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 banks of three I'll be smarter than the bank I'll write it 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 and 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 yes 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 two hundred thousand so they want to sell 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 no buyer is going to go look at that pass it 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 potential is going to look like now if you're going to stay in the deal and you can get it cool you know here's another thing you can do what's that I'm sorry we compare similar to rentals right possibly a a rental that's fully and it's doing great if you sold a attempt intended occupied property paying occupied most people pay based on the cash flow we're doing the exact same idea same thing we have a promissory 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 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 which is non-performing assets because we are buying in so well priced and we can do all the Foreclosure work so if anyone out there has a owner finance note that's non-performing or in performing 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 well we're going over one of the key items to make a higher value if you send me a loan that's written at five percent good luck good luck yeah the other thing I'm still willing to buy it but the discount's 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 of 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 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 Mac can probably talk 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 apply 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 take that into consideration it gives and it gives people that are looking at a snapshot and taking a picture of the note and looking into 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 bar from the borrower and you see another file that's written on a napkin and they they say that the borrower pays them every every first in a month in a hundred dollar bills okay which you know where I'm saying that's what that's what we're doing we're starting to establish the the the the the risk because risk is a really important part of this of this equation and this is 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 jump in here too yeah let's talk about rmlo yeah so um max is a calling order he's off camera um he said he has a face for uh radio so we'll 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 Emma property in Illinois New Jersey South Carolina why is that if it defaults it goes through a legal process called foreclosure which allows me to get a property back because it's secured by the note now when I do the exchange of title going from the borrower to me as the lender so I'm going to take the property back because 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 than 90 days we're in New Jersey in Ohio you're looking at over a year so My pricing also has a timeline on it I can return my Capital 90s or 18 months so I'm going to price it with that risk level of saying what do I get annually in Texas I may be able to do it four times in a year so I can buy that up much higher discount knowing the fact my money will come back quicker right if it's not performing now Jersey I have to pay 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 hurry like Georgia like only States it's King now facet is also we have debt licenses as note buyers certain states require debt licenses for note 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 an insurance bond and whatnot so some states are even 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 creating notes should come into play where it would make their paper more valuable yeah the the biggest one is that interest rate and and as much as we talked about uh you know charging at higher interest rates so in the creation of that paper where you say okay I'm gonna sell you this property for you know 150 200 000 whatever the number is um where I found the most success in in getting making it the most attractive is a high interest rate and then you can offset that to the borrower they say well holy smokes nine ten percent interest rate that's really high and you say okay yeah and we're 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 week about five week course and actually ten week but we're in the third week of our five week um we talk about note map and if you don't know the note map you're buying a note and the math that goes into this is key from origination to buying it so on the creating side that you got to be so here's the other challenge right yeah you have to be able to do some kind of calculation that's what we're teaching to create a deal maker 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 agree to have four percent mortgage and you sign that you're you have four percent if you forgot to put Servicing in the deal you can't add it later if you didn't escrow tax and 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 one money in a money market right now three percent I'm making three percent a year if I put my note in money in a four percent note I subtract my servicing fee if it's not including the note or I'm gonna get four percent of my money now if I'm using OPM do you think I can borrow money at two percent right now and get a four percent no right if I'm using my own money or anywhere else I can put money to work right now with ten percent possibly so I'm not going to take the risk level so I'm gonna have a discount to maybe 12 15 so if you don't if you write a four percent return a year and I'm gonna bid it say 15.

you have to understand the note math changes the answering goes from a four to a 15 and watch what happens to the PD you're I'll balance alone that's my purchase price 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 really going to be a pretty tough sell if you've got your you can surely change it you can go and try to modify but but you're going to say okay so just kidding you're not going to pay four percent anymore now you're gonna pay eight that's gonna be a really tough sell so we'll teach them what we try to show inside career viewmakers that let's just say instead of writing one note we break it down and write two okay instead of getting it in a second once someone mentioned a comment about creating notes and I want to ask you before we get the 80 20 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 mouth at all right because if it's uneven correctly I know the borrower can do what it does Max approved it he says listen to the bar 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 a thousand dollars down 300 000 I'm gonna say well 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 note math doesn't include that so I see Drew put that he's running a nine and a half percent note uh with 10 down 30 am I'm gonna tell you now that nine and a half percent note is too cheap yes Max I think you're in the background what do you what's the kind of average from Paul the underwriter he he really writes uh loans throughout the country what is the average rate of notes are being created at now you've seen that yeah you bet um but you you'll probably be unhappy to hear this but they they haven't in the last two years they haven't escalated at the rate of inflation when the aplr was 2.89 a couple years ago we still had good note creators putting nine and a half and ten percent interest on their notes so the the spread obviously was very good all I was writing probably eight out of ten 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 six and a half percent above the apor or the street rate of the day probably eight out of ten files were now one in 20 files are an HCM loan because in order to keep that same spread when the apor now is 6.5 you'd need to be in excess north of 12 and a half percent on everyone 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 talk about APR and that's just the the the prime offer rate it's like Libor right it's an index but so my question my question to you is this how do how did how did the state usury laws impact the ability clarify we usually use for those people who may not know what you meant yeah you bet okay so um usury 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 meaning State specific residual income debt to income ratio credit worthiness two-year work history two-year income history all of 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 borrowers 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 apor was too 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 you really you can't even hardly compete with a bank 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.

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 but that tells you that spread is a lot narrower now right uh you gotta got an APR or almost seven 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 apor 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 gonna help the bar out granted 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 refi out or you want to sell it off right if you write a note at 11 12 the barber can refine next year they can get you out which is great you get paid off earlier but if you're down to the eights and nines get as high as you can without screwing the bar over because if you're looking to cash out you need to do that right 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 what I do all the time a situation where we just basically back into the payment and so uh 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 one in terms is still meets but also the term is a big thing for us too right understand the fact that the term is lower our discount is not going to be as much because the change of term right if you work in a 30-year versus a 10 my discount won't be as much you can do the math and the 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 year right now back to a Nick top of the day 20 thing those are creating notes 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 80 20 loans I think are the way if you're creating nodes to do it as best you can I don't like the whole idea of land land contracts because technically then you create an 80 20 Land Trust who owns the the property if you sell one of the land trust land contracts it doesn't work and I'm curious if anyone's ever done that please put in the comments or whatnot but 80 20 is basically saying if I'm going to create a 250 000 note I'm gonna they create a hundred thousand dollar person a hundred fifty thousand dollars a second I can sell the hundred thousand dollar first to whoever and keep the 150 as a at that or if it's three hundred thousand 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 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 yield is going to be enough 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 we started how how CD rates were 14 percent now they're not going to go to 14 back in 1982.

I'm going to get there again but that 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 going to say I got a hundred thousand dollars where's the best place I can invest that hundred thousand dollars relative to risk and return well if you can get 12 in the CD in this example versus ten percent on a secured mortgage note like with some borrower 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 curiously where you are on this Dave is that when we first started doing this I was writing first liens at 78 or less 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 what's the investment to Value right the ITV not necessarily the LTV or the loan to value that's part of our investment values so if I'm wrong on my assessment of value and you come in and say well I don't think it's worth two hundred thousand 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 it 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 he asked this question this is a question me 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 are ltvs in 2010 11 12 were upside down we're underwater 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 ITB is definitely there but you know because ITV is the fact that whatever's lower is the balance the loan or the value of the property which one's lower I'm gonna basically go off that number like so we're looking now the fact that where do we think the Market's gonna go is this going to go up or down values of properties if the property is going to go down I want to make sure my ITV is lower because of risk level my ltv's 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 here it is where we're all at I'm shooting around 65 70 because I'm not sure if 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 it drop it just stays on markets or extending uh what not Nathan what's your thought about itvs and LTV yeah it's a it's a weird one because like you say 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 yeah 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 that it's it's a bit of a tricky situation for node investors because like Dave says usually we will pay based on the lower of the balance or the property value yeah and we're seeing property values drop how low are they going to drop and we're we're kind of having to do a little bit of guesswork 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 and the borrower defaults right so so you gotta have a lot of things happen right it's a thousand year flood insurance right same thing but if you if if we do a good job and follow best business practices from the beginning we use the normal mode we service to that we under we take a 1003 application on the borrower the escrow taxes insurance we get a valuation from a BPO or appraisal on the very beginning we stack the file correctly everything you're talking about is not nearly as impactful 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 the in the Korean numeric 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 the value so the risk is down but here's the thing they also have the note Creator staying in the deal yeah in a junior lien position which is where all their profit is yeah and I agree and I think that's the right way to do the property and everything so you have a little bit of the golden handcuff sort of tied to it and collectively all that and having a really well stacked property file look we can't predict the future yeah and I tell you what I like my chances because I've seen the portfolio 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 one hundredth of what the the the the the the the national average is so look it doesn't mean that they can't default tomorrow we can't have kova 2024 yet no of course we don't know that but you love it value properties you know what I did years ago they created a due diligence portal allowed me to kind of aggregate everything that I can get online pay non-paid and come together with an idea number when we bid on an asset we're bidding in a a guesstimate of what the property value is we don't dive into getting a BPO right away um and to answer the quick question ltv's loan to value ITV is an investment to Value so I use my the dualism portal portal jpp Holdings and it allows me to get Dad numbers right and then do our we are we have of course our building confidence boards we teach you guys how to to figure out with all these values how to calculate these things right and then we also said the fact that it may not still stay performing we also have to know the fact that it may default that means I have foreclosure costs holding costs servicing costs to in play that if it defaults what do you do right because it you can't I don't care if loans been performing for 10 years it doesn't mean someone's not going to pass away someone's lose a job someone to get sick right but I think the way that Nick and his group are doing it with the first and the second I think that's really the way to do it especially right now uh 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 to your Dave to your point if you're if if the property is 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 I don't care if there's 15 liens behind you okay if you're in if you're in the position you want to be in usually first so if you're in the first lean position on a 200 000 house and your cost basis is let's just you say 140 okay and that property goes down 10 in value and the borrower defaults I gotta 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 why do we care about Equity position when it goes to foreclosure auction right that property is going to either sell third party or default back to us and we have to sell it so that value probably is 200 000 more than likely to sell an auction or when I get back it could probably sell it for 140 and get my money my balance out you you do it although we do know this for a fact you have a lot better getting your money back if you're only in it for 140 and then if you're in at 160 or 170 or 180 would you get on that right yeah so that's all we're trying to do is mitigating 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 insurance we talk 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 it's going to 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 depending 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 yeah Dave and I grew up on that like you said it's up to a 30-year mortgage right yeah life happens in a 30 years nothing happens you know so you know I think 80 20 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 ten thousand dollars I can go get a 72 property and get into it pretend Rand that has a hundred thousand dollars in equity can you keep funding me and answers 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 want to I'm gonna I'll 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 a hundred thousand dollars and I can afford to write it fifty two thousand dollars I'm going to write the first lien at fifty two thousand dollars because I'm that's it's going to be a lot better for everybody involved and plus I get to stay in some of that deal as well in a junior lean position in the second no and then I don't have to worry about as much on how somebody's going to be able to come in and you know take that away and most people clarify first and second liens has nothing to do with how much money the lien is worth a first link could be 20 the second be 200.

it's the order of the county records of recording right grateful I just jump over it first second 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 right but the cost basis may only be a hundred thousand dollars the property is worth 300 now well I only need only need to clear a hundred thousand dollars a debt and I'm okay staying in the deal for the Cash Flow by doing it the other way so if you're part of the next groupings like that and you're looking for people to buy notes pick our brains reach out to us right please do we'll buy it right here right if it goes non-performing you get really scared we'll come and save the day for you right that's what we did for years okay don't call me on don't call me on the non-performing call Dave and Nathan man we're very interesting absolutely if you're looking at partials which we 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 it partially another way to get some of your money out it's similar to 80 20.

I'd rather you do an 80 20. you didn't do a partial but you can do that whole fast and I'd rather buy the whole loan than actually buy a partial but I can make both work uh 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 as we're closing up here that people are making with either originating or selling a note well I think on the origination side 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 a structured and look at it as it in the event that you do okay right this is on the creating side right so you want to make sure you do it so you don't have to 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 if the indicative bid be on the note if it's created this way and it's underwritten from the rmo and everything's 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 uh definition of risk and and some people and a lot of people have a different opinion you know what a solid return is okay right because if you're a family office and you're sitting on a hundred million dollars you're not you're not trying to make 12 return on your money no right you're trying to preserve your 100 million dollars to 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 a 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 a risk take something that's a little bit on the on the edge of being a re-performing non-performing Judicial state note because I can get it anything and I don't really care if I got to take it back because that's what I think's cool and 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 want that answer to 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 buy because I'm going to 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 replacement to be investing in a note yeah you know because it's all it's all relative so before Nathan you asked that the your final question uh Drew one is comment your question about um creating mobile home things in his different family homes I suggest you reach out to Mac call the underwear go directly you can Google it and you get information about Max uh I reach out to indirectly ask them what specifically you would need for mobile homes and whatnot um and don't 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 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 12 month and a 12-month season no let's in you know all things equal how much is it another two points 4.6 points for me it's three points yeah two points a huge difference yeah so this is a great question here because earlier they were losing people here but yeah because let's talk about this because my position is um you know you gotta ask yourself the question is the upside gain or at 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 hundred thousand dollar value I might be able to get an extra two thousand dollars according to you Dave 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 it's a dramatic discount depending on the states and stuff like that it goes downhill a lot faster than it goes up you agree yeah yeah absolutely it could drop five seven maybe ten maybe targeting say 15 but if it goes non-performing I'm gonna 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 gotta aim higher for my returns right and just to clarify what seasoning means everyone considers teasing different right table funding is at the table you double close an idea some people want three months some people want six right we're targeting around three months right now they'll buy at the table right yeah right but if I bought the table I'm gonna increase it two percent you know it's just what we do because the risk level is this borrowing to continue performing if not I gotta 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 will we know what what returns we're going to want a year from now they may not be exact but it'll give you a ballpark anyway what if CDs go to 14 in a year right right if why would I buy your note and 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 can buy 15. it makes sense no because it'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 the market starts tanking you know we're targeting 10 9 10 3 years ago yeah we were there because what the money was where it was so it's a matter where can our Capital go and what return we need on our Capital so um I think that's all the questions we have on here um so Maddox is Tennessee one of the low usually State Mac doesn't get involved with the usury law right that's something for you to do he does the underwriting side of it right yes Nationwide yeah he's Nationwide kind of underwriting so if you question about underwriting that's max if it's a question about usually law that's your local attorney or your originator in your state yeah so max doesn't originate Matt's only underwrites he's just an 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 mlo in those States or yes uh yeah me and unaffiliate so are you using it you actually have an MLs 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 debt closing to the seller yeah fascinating all right good to know yeah and we're adding more States all the time so so one last one question when you do that then are you following traditional for you to do that now does it have to check all the boxes as a Traditional Bank lender would have we roll it to the DTI credit score uh well they're uh understand that almost everything 99 or better of all seller finance notes or non-qm uh and so we're following standard non-qm uh origination and underwriting um principles so are they more flexible than Fannie and Freddie who's selling to mortgage-backed Securities that are very risk-averse 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 Fannie and Freddie lenders are having to go through right which is why 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 seller finance so it's 720 now it's up to 720 now a lot well that seems to be you know because because think about it I mean if you were trying to meet the Wall Street mortgage-backed 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 good stuff so I would definitely reach out to Max give me yell whatever go on the website um the underwriter.com yeah yeah you can and you can if you guys aren't in our career viewmaker you know join our 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 deal maker and you can probably put something in the show notes Dave or whatever absolutely put on the YouTube channel put it all on there and you reach out to Eric and yourself and we run this webinar 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 going to make each other's life a whole lot easier um yeah Nathan let you go ahead yeah sure so we've gone over time 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 our overtime so let's try to keep it concise if we can just for people listening in where do you think what do you see the market go in the next six months well I think from from the ability to create to create opportunities for homeowners they can't get Bank financing is is only going to get bigger if the seller will carry Market's gone from 20 million or should be 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 but produce financing on so it's just the 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 do this an underwriter that knows how to do it or a servicer uh you can really get yourself into a pickle I don't necessarily mean legally but I'm talking about from a valuation standpoint because it'll make a huge difference when people like Dave and Nathan and and even ourselves go to look at purchasing that note yeah yeah absolutely and I agree I think I think there's no slowing down of the seller finance I think that we're going to see more and more and more of that yeah so learn how to do this one sell off the mortgage yes we want to buy as much as you guys can produce let's put it that way right and Nick's doing it too but you want to buy quality stuff right you don't want to buy a bunch of crap yeah we don't get much involved with just because you know it's spotty but if it's a clean non-qm where it's like some stupid we have no problem buying on qm which is non-qualified mortgages for those who don't know that and I I probably buy more than Dave I'm a little bit more risk tolerant and I'll uh I'll look at that kind of stuff as well nice all right we're going to turn off the uh from the social medias uh I'm gonna finish up and Nick appreciate you Nick jumping on appreciate it 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.

awesome thanks guys thanks thanks a lot well I think on the origination side 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 a structured and look at it is it in the event that you do okay right this is on the crating side right so you want to make sure you do it so you don't have to 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 if the indicative bid be on the note if it's created this way and and it's underwritten from the rmo and everything's 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 uh definition of risk and and some people and a lot of people have a different opinion opinion on what a solid return is okay [Music] May everyone Dave putz here from jkp Holdings alongside me as a lead Mr Nathan Turner hello hello hello it's been a crazy uh time uh New Year's has a purchase and we're starting out 2023 in a little bit different way I think a lot of our angles have changed 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 reduced to Bank Virginia notes yeah it's that'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 looked for was the opportunity to just invest and make money on our money um I spoke in Korea 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 pick some 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 no it's my the beginning of my no career was creating notes back in Columbus Ohio and it was I actually really like 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 I 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 I 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 in the fact that when we here is 30 billion originated it's nuts yeah um yeah everyone's jumping in here a billion like not million billion dollars of seller finance origin in one year yeah yeah so that's huge the 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 Summer Finance doesn't have a good connection to the world of note buyers and what we're realizing is 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 copy do that so we have two groups of people joining us today um unfortunately Mark had an emergency hey 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 reps 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 gotchas that no buyers look for so you can refi out for sorry 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 you know I 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 purposes as node investors uh we need we we focus on different things and we need to have things lined up the right way uh 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'd 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 the most gentlemen paper right 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 Marcus will be here 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 met years ago didn't realize I did um and no conference um but it it's amazing where the connections come back when we got a phone call and you start talking about these things we're in the same game as Nick is which is really cool and their 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 we're gonna be here you can sell to us and refinance everything so Nick I appreciate you jumping on this morning um and spending some time with us awesome and your knowledge and experience not just 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 did 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 to listen to the old guys right and the old guys were around when the crap hit the fan in 2007 2008.

I speak a lot and I was at I was at a uh an event and there's maybe 300 people and I I asked the question I go hey who was around raise your hand if you were around into doing real estate not even notes just real estate in 2007 and you can 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 a 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 got to read this to you because you guys will not believe this if I just said I don't 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 the the the yield was 14 holy cow 14 can't make it up and look at it right here are you kidding me he goes that was when I didn't have any money when I uh because when it used to be 18 he said yeah 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 a time and you look at what mortgage rates have traditionally done this is this is only High relative to what we've been experiencing literally the last five or six years because in 2007 2007 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 a pivots 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 middle right so the nodes I started a company in 2012 my partner John Montero the company called right likes capital okay and the whole point that we did we built that business to sell and not from not that we knew that we were going to sell it but we knew that if we used and 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 it to 2018 we actually end up this was a seller financing business okay it was creating creating nodes from scratch buying properties fixing them selling them to owner finance buyers that were not a 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 literally 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 uh 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 did do what we did we had to know I had a pretty good idea of what we were doing and so as a result of that brings us to where we are to now today is where we have with the USA no Pro and the creative viewmaker 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 dollar market in Industry that you do 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 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 five percent of them do more than four notes a year yeah okay so it's a very fragmented very fragmented business in 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 very few that I know of at least that tell you how to structure it at a at a bank quality level so you 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 doesn't 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 and 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 no 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 they wouldn't lend it they just want to live there's going to be a lender they just want to control now there's people that say well I can fix anything so bring it on cool there's a place for them in the world too but I'm gonna 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 won't 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 you know I always get asked how we just gotten 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 amortization 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 I want to own I want to own notes relative to single family residences but I wouldn't but if it's but I don't have a problem owning assets that is commercial or multi-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 selling 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 it wasn't zoom and and Facebook live and stuff like we're doing right now in YouTube to really educate people on how to prevent from making mistakes that's why I'm so animate 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 close back then didn't have education and like we have it today and I had on property and I I bought it I didn't buy it they 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 and I said fine so I drove by the house and I go oh that's what a 30 that's what a 25 000 house looks like remember this is a long time ago right you can't at this point at a you know 25 000 you know is a hundred thousand dollar house it's a little it was a little two bedroom one bath POS 700 square foot house you know and it's and that's what you would see today and this was in Dallas it was what you'd see today and maybe eighty thousand dollars right if you can even find any thousand dollar house now and so I was driving down the street and I saw a sign I said Ben De Casa and I know I know advantage to be dangerous so I said I call them 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 fact or whatever you want to call it talk about the 30 billion dollar market but you know what else there is about 60 to 70 percent of the population can't even go down and qualify for a bank account right okay so when you think about this and this one sort of drives me a little banana 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 and get a bank loan okay and less than five percent 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 and 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 when I 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 two year when we can get into this in here the deal structuring yes is where the value comes in okay you know what people say that you make your money when you buy them when you buy the asset well well that might be true in a traditional real estate model right but in the note side it's not bad at all it's how you structured the note yeah how you stack the collateral file are you 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 rmolo all these little things yeah are the important character characteristics that add up to uh uh a premium note that like Banks do and I always say it and then I'll let you guys continue on is that what would a bank do correct that's the first thing I asked the question what would a bank do okay would a bank do a contract for Dean no why would you need people could do contractor needs all the time I'm not saying there's anything wrong with the contract for Dean I'm just saying Banks don't do contract for Deeds right and why is that because they don't need to and they don't know they're perfectly protected if they write the promissory 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 and they might not check all of the boxes that a traditional lender needs their DTI might be a little bit offered they may have only been invested income by the way those who don't know pti's debt yeah sorry your credit their credit score might be you know 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 the glass the average declined credit score decline credit score was 708.

wow decline well the average I mean are you kidding me yeah I mean I mean 708 is a good credit score yeah I mean I'm just telling you I'm my credit score is not 708. I use it I leverage it it goes up 50 points down 25 up to 75 but that's just the way I but I that's why 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 use it but I think a lot of people when they create these notes they think from the borrower's point of view and they try kind of I need to get a borrow in place and I write notes and originate but they don't realize the the other side of the 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 gonna have a heartache going to foreclosure because you a maybe you originate too many loans for the year or you didn't hire a license originator yeah maybe you didn't underwrite it at all because you did a land contract not realizing that you need to underwrite land contract if the borrower's still in the home so when you use these kind of things now underwriter granted if you're experienced you're going to write yourself however 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 into that point well and they meant to 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 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 more lean mortgages okay and the reason why we do it is to what you're doing what we're seeing because we're thinking about it from the note buyers 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 is it what is it for those who may not know what that means so discount is the there's a balance of a loan either an origination or current balance and we're going to pay less for that I give the example like a lottery right when the lottery is a billion dollars you don't get a billion you get a half a billion right so you're gonna get a discount based on the unpaid balance because of the fact you're getting money now versus later so the discount off of what the value of Time Value money that's one but there's other things too right there's how uh what is the states there's the states there's the interest rate we're getting told that but what start first off origin good paper solid paper right you know running a piece of paper on a nap you know random napkin what the terms are for a borrower doesn't always equate to a good solid syllable node not saying if you never sell it it's not good but if you're going 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 they're 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 so they can file it they can record it they can do everything from a legal date but let me tell you something I could give two riffs 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 address in your promissory notes okay yeah servicing is a lender a title that you hire from a title company an attorney that crafts it are they even gonna 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 well let me tell you something and service yourself but those who are getting into notes were one I recommend getting into server serve because 100 if you do things wrong you violate federal law well that's that's a whole other issue of itself but if for purpose Apple you say all the self-service are great so that's fine well that affects the yield when you go to buy it right so that's that's a huge discount that you're going to have to eat at some point in time if you decide to sell in in liquid a but here's the other thing I see a lot of times when people do it they'll go in and they'll put in the dollar amount of the Servicing for example twenty dollars twenty five dollars thirty four whatever it is okay well let me ask you a question do you think 10 years from now servicing is going to be twenty dollars a file no no no you think 15 years is going to be 30.

for all we know with inflation it could be a hundred damn dollars a a month maybe 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 paid 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 it's really really critical to make sure that you're writing promissory notes 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 when 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're gonna 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 don't want anything we ran through recently it's a servicing question yeah so those people are reaching notes yeah I'll let you share like what we're running to 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 this is scary but then the question is they have a monthly payment of say 650 and that 650 they'll just record it as 650 every month coming in they've they haven't even touched amortization 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....