Why and How to Sell a Seller Finance Note | Real Estate Notes Show

Episode: Why and How to Sell a Seller Finance Note: Full Video Dave's Goals and Plans: - Been buying mortgage notes and real estate back notes for 10+ years, primarily bank-originated notes - Recently started working into seller finance notes and has bought a few of them - Main business is buying already originated notes as income streams rather than originating them - Buys both performing and non-performing notes, including 'scratch and dents' - Started buying non-performing notes as main business after 2010 recession for last 10-12 years Nathan's Goals and Plans: - Started in notes around 2008, creating land contracts in Ohio - Struggled with how to cash out of created notes until learning about the secondary market - Now helps note creators understand there is an outlet to cash out and make additional money - Currently buys notes alongside Dave, focusing on seller finance notes - Discovered there's a huge gap between note buyers and note originators that needs to be bridged Key Recommendations: - Calculate returns as annualized returns versus one-time lump sum ROI to dramatically increase apparent returns - Season notes for 2 months and sell repeatedly to multiply returns (example: $10k can be cycled 4x yearly) - Understand seasoned notes command higher prices than unseasoned notes due to lower risk - Consider 80/20 loan structure: sell the 80% first mortgage and keep the 20% second for ongoing cash flow - Use note buyers to cash out and reinvest capital into new properties or personal needs Topics Discussed: - Why seller finance note creators should sell their notes - Difference between seasoned vs unseasoned notes and pricing - Secondary market for notes and how it works - Non-performing notes (scratch and dents) and their value - 80/20 loan structure strategy for maximizing profit while maintaining cash flow - Role of service providers like underwriters and servicers Guest Insights: - Melissa: Created millions in notes through subject-to deals with owner financing in 2.5 years, enabling exit from rat race - Melissa: Often becomes cash poor despite creating notes, wanting to cash out some to reinvest in new projects like hotels - Melissa: Uses 20% down payments on subject-to properties and creates good monthly spreads for borrowers - Justin: Transitioned from wholesaling to note creation for win-win scenarios and to help more people faster - Justin: Note creation required less capital raising than wholesaling and achieved faster results you collect Leo balance you can make an arrangement with the borrower or if it goes foreclosure I can add it to my balance at the auction so make sure you have the unpaid balance there so and then the unpaid balance uh that's and Melissa I wouldn't I don't want to pick on you but I just I just to point it out that's the problem with apartments.com is that it doesn't calculate principle and interest all its tracking is monthly payment which is good and we we definitely want to know that number but we also because we have an amortization schedule to follow we need to know how much principle and how much interest is being paid every month which is where a servicer comes in so where to get let me let me jump one thing before we get there yeah you know the fact that please don't give us Piti for those who don't know principal interest tax Insurance all we care about is principal and interest why tax insurances are something we don't receive as no buyers I'm surely you guys we don't receive it you guys may and then it gets paid out right our servicer typically does an escrow and it pays that money out so we don't see that all we care about is that personal interest which does not change no matter what happens with taxes or the the insurance part right so all these kind of deals of numbers and making sure that you don't receive part payment or you pay they receive more and it makes sure it applies correctly using different services are great there are software out there to manage these things right however like landlording we have things called note servicers note servicers will reach out to the borrower they'll send monthly statements to the borrower the resolve issues with the borrower they'll if there's a defaulted loan they'll reach out and try to negotiate with them so I say mods there are property manager in the new world what they also do is provide a system of tracking the payments on Lake apartments.com where it's a rental because that will dramatically increase your returns no matter what you do and you can do if you could do this four times a year season it for two months sell it to using it sell it over and over again that 10 grand on 40 multiplies and and yes we're more than happy to buy notes from you all through the air any day twice on Sunday I tell you guys a funny if anything about the servicer I I was because I've always used a servicer and I didn't know that there was any other way um I had no idea how much my the my borrowers actually paying I didn't even know that they were paying for the service thing I know we originally put it in there but I had to actually reach out to Sohail because he Services my nodes and I I got I got one of their statements and I was like oh well this makes sense I was worried about taxes and all this other stuff and all that stuff was just taken care of by Sohail and just made it so much easier and again the borrower paid for it hey there you go excellent nice so um just looking at some of the questions we got here um what states did servicers Cover um understand the fact that you're right servicers are cutting license in certain States and don't need license in other states every servicer is a little different um some serverses are not in all 50 states but you may not need all 50 states if your originating notes only in Texas that's all you care about right I know Justin uses so how on home key if you're reaching in in Texas just call home key and they can do it I know so how is working on adding additional licenses on um but yes so yes States for servicers matter so um I know we had another question from Michelle about um servicing services I would say that your services from your servicer is more about tracking the notes right they're not going to do the they can sign up for door knocks stuff like that but they're really just a property manager to collect and deal with issues and they I would have them do in yeah calculate that as an adding return versus a one-time lump sum Roi because that will dramatically increase your returns no matter what you do and you can do is if you could do this four times a year season it for two months sell it to using it sell it over and over again that 10 grand on 40 multiplies and and yes we're more than happy to buy notes from you all through the air any day [Music] thank you hey everyone Jay putz here from jkp Holdings alongside me as always Mr Nathan Turner how are you very good very good Trend stay warm oh my God apologize so I wanted to make sure that we connect for a few minutes let us people who don't know who we are kind of get to figure out what's going on here um I'm Dave footson run jkp Holdings for about 10 years plus I've been buying notes uh mortgage real estate back notes for that many years and um I've been primarily buying Bank originated but we're working into this idea of seller finance notes we bought a few of them but we'll learn a little bit more about them and that's where I'm at Nathan care Share about yourself so I'm Nathan Turner uh I started in notes in about 2008 and I was creating notes like a lot of you guys do and uh it was in Ohio so in Ohio it's a land contract we were making all these land contracts and and one of my biggest stumbling blocks is like okay how do we cash out of these how do we how do I make money on what I've now created uh and took some classes and started meeting some people and learned all about notes and this whole secondary Market that I had no idea existed before uh and now it's kind of come full circle it feels like we're where now Dave and I are here we want to help those who are doing what I used to do about creating notes there is an outlet and there is a way where you can cash out of these you can go out and make some more money and we are more than happy to buy your notes uh so we're going to get into all that stuff today but that's just kind of a real brief introduction absolutely we have a lot of people here don't know who we are a lot of people are really interested in this topic and what we found is a huge bridge between the world of note buyers and those are origin notes the seller plans or owner finance origination world and us it's almost like two different Bubbles and what you're gonna find out today is that our connection between what you guys do and what we do can be seamless where it just flies which is awesome so I want to make sure you guys tune in ask questions I got a few things going on here to kind of track things we're on LinkedIn on Facebook uh hopefully everyone can see us in here and all that good stuff if you have problems make a comment in the box and go and go from there but we want to start up with you guys um we do have some guests which will bring on the second but we wanted to just kind of introduce what we do and some of the first things we want to talk about today yeah so we like it's it's it's a big world and it's big leap I like I say I started out with creating notes uh which was great and I love creating notes I still do it today a lot of seller finance notes mainly what I buy and Dave as well is as mortgage notes so people will go and get a mortgage with a bank with whoever Wells Fargo Chase Bank America You Name It Whatever Bank um the bank will then sell that note and there's all kinds of reasons why they sell that but but the short story is we will buy those notes uh we are not Banks we act as Banks do in some cases uh but that we exist or where to turn to sell that note and today we're talking about what you can do to turn to sell the note to any of us and what details you need you can take this money and go buy another property with it you can do anything you want with it the one caveat is some of you guys have some assets that are non-performing oddly enough we buy them too oh I'm crazy but we buy them too right so yeah both Dave and I started out really you know after the after the whole recession happens so we we both started out buying non-performing notes as our main business where people are not making payments living in the house that's what we started buying in 2010 uh and that's been a major part of our business for the last 10 12 years so if you've got one of those problem notes or let's say they're just not paying regular and they're just kind of a thorning your side we buy those too we call those scratch and dents so we'll buy the scratch and dents we bought a non-performers we buy the performers we buy pretty much anything so hit us up yeah so when you're looking at buying this kind of stuff there are two different worlds you play in we have the seasoned note and buying at the table at a closing table you can sell either one of them understand the fact that if it has the seasoning which just refers to a time period of proven payments we can buy it for actually a bit more money right than if it's brand new the wrist level is higher you can also sell part all the loan payments in the first five years or you can click the whole thing and buy sell the whole note off and do what you want with it one of the caveats we've seen recently and we actually have some two people who are Professionals in their space as well is creating what they call 80 20 loan we have 80 on first 20 in the second and you can sell the first off and keep the second for payments and we aren't we don't actually own the property we just own the mortgage attached to the property are the node attached to the property and so we collect payments in that way so that that's a very very brief introduction of what we do what else you got Dave yeah so one of the things we wanted to First share with you guys is that we get the concept of mortgage and new and what you guys are doing we get right but what we want to share with you guys is why why would you sell a note you know and what do you need to provide to us and what you don't need to provide us to make the numbers work yeah right so one of the things we want to share with you guys that you guys make huge profit when you create that note huge profit you create a note that you're into a deal for 40 Grand you create a hundred thousand dollar note oh my gosh is awesome at a thin air you created money and we have some great people who are going to be joining us today who are doing just that as well as those who are doing it on a larger scale they'll be in the Chatham short so when you create that note what you don't realize that you can cash out everything you're into it for plus more which is awesome that that's what we do we we go around we buy look the loans like I said I do some origination still uh and I enjoy doing that but my main business is buying already originated notes so somebody else created that note I'm just buying it as an income stream uh that's my core business so I hopefully you can see already how our two businesses really come together so we have some Chichi here to kind of go down our checklist and make sure we include everything for you guys um so when you create that note and you create this money out of thin air do you know you can sell that note to us the collateral and just create another new amazingly enough I'm finding a lot of you guys don't know sell the eighty percent of whatever loan you're creating for huge profits for you guys and then you've still got that 20 second that you can collect some money off that as well uh so you still have some cash flow but then you've got that big chunk that you can go back out and do whatever you're gonna do or whatever personal thing you've got maybe you're sending somebody off to college or maybe you're you know renovating your own kitchen or you know whatever it is you've got that money needs for uh we're here to help fill that Gap yeah absolutely so um I want to I'm just going to bring up uh some information here what we do have today um is a few special guests who are not gonna be on video and then two guests who actually be on video uh if you're familiar with no creation somebody twos or any of that kind of world you've probably used an underwriter well we have Max from quality underwriter on he'll be all video uh but he's gonna be discussing things or answering questions we need to to go to them we also have somehow who runs home key servicing uh so how is a service provider who will act like a landlord for rental properties but for note space we're going to get into why a server series P for us as well as for you guys as we go along away from it and Sohail is that's one Service Company there's a bunch out there uh we happen to have soil here he can answer all kinds of questions he'd be a great resource for you uh if you move your services over to him fantastic that's that's good for him uh good for us and we'll talk about why that's good for us as well we'll get into that awesome so let me uh switch over here uh we should be good we have some special guests on right now um I mean just make sure we got going on we have uh two guest letters right now that we are really excited about right um we have Justin and Melissa hopefully you guys are there and we all have her I'm muted so um what we want to talk about today with you guys is this idea of you guys create notes and create dollars out of thin air which I think is awesome you're still muted can you Melissa can you share a little bit about how you got started in this idea of creating notes Okay so please forgive me because some of the things that you are going to see are probably going to make you cringe like the fact that I use apartments.com that's okay definitely open to doing more better as one of my real estate Associates say um I've only been in this market for about two and a half years so it's been a learning game right it's definitely been a learning curve um my first deal was kind of just dropped in my lap and I feel like God says okay you're done doing wholesaling you're smarter than this this is what I want you to do you know and it just really after learning this strategy I was able to get out of the Rat Race and create millions of dollars in like 18 months so it was life-changing for me very fast um I do specialize mostly on getting subject twos and then doing an owner finance with those subject twos um and I get 20 down and I create a great monthly spread for the most part um and yeah everybody pays through apartments.com and it's a good life however I do often find myself uh cash poor right so I'm I'm like you know now I've gotten a hotel that I'm looking at and I've created all of these millions in in notes and I wouldn't mind cashing some of them out so I could get some cash to reinvest into this hotel that I'm looking at so hopefully learning all this by the end of this uh session I'll be able to do that yeah awesome we may have to spread this out into a couple of webinars because there's there's a lot of information but you're in the right place this is this is great and we want to remind you guys if you guys watch this video in your middle of it this will be on YouTube we'll be on the Facebook page uh be on our website uh but yeah YouTube channel all the good stuff is there uh just look up jkp Holdings on else uh on YouTube you'll find this video so Justin can you share a little bit about your background how did you get involved with notes uh very very similar very similar way I uh I started off wholesaling and I just man I just really didn't like it I was cold calling and you know it was like offering these 50 deals or 50 for cash and I just I just didn't like it and then I I kind of discovered the more creative route that you could take and just making win-wins for owners and you know for buyers and sellers making win-win for us you know I just try to make as many um it seemed like I could help more people that way um and and help them faster There Was You know I didn't have to raise as much Capital you know and a lot of times when I did raise the capital I was able to you know very very similar to um very similar to what Melissa was saying you know buying subject two and then if I had to come out of pocket any cash I just turn around and get that cash back from an owner finance buyer um a lot of times but sometimes you know we've flipped a couple of houses that we just you know that we couldn't find buyers for and we just ended up owner financing them and then you know we were like well we can sell it we've heard that you can sell notes so you know eventually you know and uh I was you know earlier this week I actually sold my first note so I've been through the process um but as soon as I opened up that can of worms it was like holy cow there's so much more to this than than I even knew yeah and you know what I went through the exact same thing I started creating these notes in 2008 in in kind of all over Midwest Ohio Indiana Michigan and and it was like okay there's got to be a way to cash out of these and I had heard rumors you know I'd heard these stories about people that buy notes and I went to a um a training seminar in 2009 and it just blew my mind I could just all this huge secondary Market that I didn't know existed I went to uh to a conference later that year uh down in Louisiana and and everybody's you know talking about this thing that I just barely learned about and yeah it's it's real and it's a it's a very vibrant Market yeah one of my first deals I actually traded equity in in two houses for an owner finance house on the back end and so I had all this Equity sitting there that I ended up selling and making all my money in the front end because I sold the other two houses but then I still had this other one sitting there and I was like well that's all my money that's tied up still sitting there yeah um and that ended up being the one that I finally sold and I was like oh well that wasn't as hard as I thought it was going to be yeah um but there was there was just some intricacies that I had to had to learn and kind of get punched in the mouth and keep on rolling with okay awesome so we want to get into a little bit more of the details of this stuff um to make sure those are watching you guys will what we're talking about here so what people get interchange words a lot of times right so there's this thing called land contract contract for deed we also have a lease option we also have you know a idea trust all these different words that mean different things but generally means the same thing right if I say listen is it a mortgage or land contract you may say why does it matter well in legal sides if a woman goes not performing that does play a role certain states don't allow land contracts you talk to people in Texas they say what are you talking about right um I have no idea what a land contract yeah you talked in Ohio Indiana it's all over the place there Michigan right if you go to Louisiana it's called a bond for deed if you go uh one of the Carolinas I think it calls in an agreement for deed they're all basically the same thing for our purposes we we kind of lump them together and call it contract for deed or cfd yep and we even know the difference we would ask you guys to let us know what it is if it's a mortgage or not um just make sure you tell us what it is because we have to price it differently and certain states are actually discouraging land contracts with the attorney with the judges so in certain situations where the land contract can't be foreclosed on or can't be evicted you actually have to a foreclosure depending on the numbers and that doesn't necessarily mean it's a dead deal it just means we just need to know what it is up front so we know what we're going to get into here if we need to convert that over to a mortgage at some point or or something else but we have options we have things we can do uh we just need to know what it is getting started we lost them with it for a couple seconds Melissa whoops hopefully she can jump back on we'll switch over uh so when you guys are when you guys were talking about that I didn't even realize that we could sell a leaf option the same way we would sell a a regular mortgage note um because I do have lease options but you know we we like to take what we we like to see our lease options as the dating as as dating our tenants before we move them into owner finance yeah um and and it actually works out really well for us it's you know we get to capture you know all the all the tax benefits of being a landlord originally and then we switch over to an owner finance deal um but I didn't you know my concern was always well dang you know if it's a lease option I can't cash out of it because I can't sell it because I don't have you know they have the option yeah yeah so short answers yeah we'll buy we'll buy lease options with a lease option it's a little bit more particular uh depending on the terms of the contract a lot of they're all different you know different lease options are written differently so we just need to read through the agreement and understand what's in there but the short answer yeah we'll buy lease options as well we're probably going to do the same thing and flip it over to uh to either a land contract contract for deed whatever you want to call it or to a deed of trust or a mortgage note uh we'll probably convert it to something else sometime in the future but yep short answer yeah we'll buy that interesting okay we had a question here too uh Kevin yeah Kevin asked uh he does Private living for 12 months or less um is there any advantage of selling short-term notes in our marketable if a note is 12 months five months 30 years 20 years it's math equation right so um anything you want to ask feel free to put in the chat as well but yeah we can price it you may get a significant discount you may not we run everything through our model we figure these kind of things out right um it's remarkable absolutely the world of notes is really buying it as the numbers right we base our deals on numbers where we're going to get into you guys based on dollars um and we're gonna we thought that Justin earlier before we went on and that idea of facing a dollar is may make sense in some worlds but we're going to show you why it makes sense to do it based on returns better so um the other question we have from it was King divert a note of a land contract into a deitrust absolutely it's done very regularly um and we have Max on audio but he can tell you about that in a short while but if you need to um you can definitely convert that over call it's called call the underwriter um go to the website and you can convert any land contract over to a note so and and like even Justin you're saying you need to go to a lease option and then convert them over um you don't need to I mean that's fine and if you want to date them for a little while before you make it permanent I get that uh but you don't have to you could just you could just start off with a do you trust a mortgage whatever whatever it is in that state is it is it is it as valuable that way um is the note as valuable being a lease option over being uh owner finance does it does that affect the value of that of that deal um so probably an order of value the lease option is probably going to be on the bottom of that um again not to say that it's not valuable but I'm probably gonna pay more for a Data Trust than I am for a lease options okay feedback is that me yeah I'm not sure who that was but um Melissa's back welcome back hey Melissa over here it's pretty much the Story of My Life um quick question about the lace option though okay so let's say that we we did a lease option with someone and we met you guys and you're like okay we'll pay more for days of trust and not so much for lease options could we go back to that lease option um buyer and read you know redo the deal like start a DOT yep absolutely and then sell it to you okay absolutely definitely yeah we would recommend so yeah so so so kind of kind of you know piggybacking off what she's saying a lot of times what we do is when we advertise for uh the owner financed buyers we have uh our lease option is say five percent five percent down and then our uh owner finance would be 10 to 15 down um would based kind of like what she's saying if I took the five percent down and then in a year say okay you still got on-time payments let's go ahead and convert it without you coming with the rest of the down payment um would that be something that would and then and then immediately turn around and you know call you guys and say hey I've got this owner finance uh situation or or deal for sale I guess it'd be a note at that point would that affect anything so a couple of things I'll Dave I'll give you your in a sec but so uh 10 down is better than five percent down for sure of course you've got now 12 years 12 months of pay history though as well something uh so even even though even though that's technically rental payments uh yeah no they're making regular seasoning right right or even rental payments for seasoning yeah and you may say listen I have two payments but then you say listen I have 12 month rental payments I can prove that's more attractive than some brand new person right think about if you're buying a rental property if you're gonna buy a performing rental right what do you do with the situation where the you know if property's already rented out for a year you feel good about that rental yeah or if it's brand new rental you know buy it perform a rental in the radio it's not so trackable so a lot of mine kind of offsets that a bit the five percent down oh okay that was that was gonna be my next question because a lot of times we wait for them to come up with the rest of the down payment to convert them over but it sounds like we'd be just fine just moving them over into an owner owner finance as it is yeah and and so maybe that's the next thing we should get into David we've had a another question about that about what kind of terms we're looking for that kind of thing maybe that's the next step here yep go narrow checklist here so go ahead and start it off quick up yeah oh you want me to Sir hey go ahead sorry okay so we're looking at a few different things when we're looking at a note um down payment is is the first thing so the bigger the down payment the better uh it shows that that person's got skin in the game and you guys all know this this is this is what you do uh but that bigger than down payment the more skin in the game um the safer it is for somebody to take that on and have confidence that they're going to continue to make payments long term so that's that's number one down payment bigger the better uh I would say as a general rule I would go ten percent Dave you looking at anything different or is that about right it's weird right with the seller France world where Bank of Virginia notes this never was a problem was never an issue so it then now the world is I'm more aware about LTV now because of what's going on out there than actually down payment per se so on a five thousand dollar I would think more percentage-wise so if that note is five grand but it's a fifty dollar note versus a heart attack to me that percentage is big but I can figure out the percentage why so down payment will allow me to figure out the percentage that was down made for me that's more attractive than a dollar amount yeah a good point before we get to our list I wanted to make sure that you guys have some more general knowledge before we dive into it and we're going to have a form I'll put it in the chat box here for you guys that will um allow you to get the full list of items that we want um any nope I wouldn't want actually so one thing you have to figure out is are you a borrower or a lender and what I mean by that is a lot of you guys out there are 72 buyers where you bought a property subject to and you're technically a borrower to the other one but then you're a lender to the new owner and there's some Dodd-Frank rules behind what you're doing to make sure it stayed legal we're not going to get too deep into that right now but after the question about that we can kind of hit on things but we got to make sure that if your borrower and the lender we need to make sure we're buying that second lien that's created for that cfd whatever you're creating is able to pay off the first and the contract shows the fact that we can do that in addition to that making sure you let the borrower know that the first lien is still there you need to let the borrower know that the subject you lean is there or because they're subject to situations if you have questions we have Max on that explain a little bit more about that but you need to make sure your borrowers know that the first lien on there um similar things are um the amortization upb we're going to get into what that means but understand there's a upb unpaid principle balance as the note goes down and that should stay the amortization wise and that relates to a payment right when you make a payment that's 742 and 36 Cents if they pay 740 that wasn't a full payment it sounds foolish but it like it affects the way the balloon on the end of the payment is even that change because if you take 10 cents and multiply it by 360 payments there's a balloon at the end of it and that will change everything out and if it gets contested in foreclosure we buy and start defaulting that all come back into play so I I have a quick question I can go back to the subject two question uh the subject to discussion and correct me if I'm wrong but if I have an underlying mortgage and then I have a rap note on it and you buy that second lean note it would wipe out the first and make you the first lien holder correct yes yeah okay and it has to happen that way right yeah I have to yeah I guess it does well I mean it doesn't have to we prefer to put that way yeah right because I mean again another thing is if you're buying a first lien or buying a second lien the pricing changes just like seasoning so the first lien is not as risky is the second which means I'm gonna buy that second at a much deeper discount okay so let's let's say I have an underlying lien that's staying near the same as the if if I because I'll I'll buy I'll buy subject to um houses that have no equity in them and then I'll wrap them you know obviously I can't I can't sell just that second lean right you can actually I love it okay I guess I'm confused if I sell that second lien listen let's use real numbers here you bought a 72 profit for 40 Grand you're into it you rewrote a note on that property say a hundred thousand dollars so you have total debt of 140 000.

if I sit there and give you say 80 grand for it you can take 40 that grand pay off the first which I I would I would want and then you get 40 Grand in your pocket and you walk away and then I'm in first position now right and if I don't and if I don't pay off that first lien wouldn't that person get paid off at closing so there's no closing here right we're not doing a title closing here at all this is not a property sell this is a note sale just notice okay I love it I love this and is there is there any is there any legality there that I should be you know concerned with you know with in a situation like that because if that first note gets called I mean I'm I'm technically I'm I'm out of the Woodworks there what why do why why would I pay off that lead that we would pay off the first inside of an escrow account of account in that contract with you guys Hey listen how do you pay off balance that first make sure it's included in our contract would say this would happen and we'd probably run it through like an escrow or attorney to ensure that money gets DVD correctly okay so the quasi-closing I kind of set up that's how I would probably do an inspiration I haven't done it yet but that's my thought process okay so so why would why would somebody only sell the second lien you can't why would somebody why would somebody even buy this like just a secondly so second lien holders are a little bit of a different it's a it's a different spin on the same thing that we're talking about they have all kinds of reasons Dave go ahead I don't do seconds let's say you have a lot of loans were created with piggyback right 80 20 loans right you have 100 property you we can use a million dollar Problem whatever the first one's a like a 60 the other one's such one right 20 grand total 80 grand so now you have up to 80 grand 100 property you have LTV at 80 which is not the best but it's fair now I can go and buy that second lien for 20 grand or I can buy for 10 grand save right and I can start receiving payments on that second I'm not as secure as the first right I can get I won't get into all that stuff but I can buy it but the problem is if that property drops in value my second lien gets squeezed with Equity but that's it that's that'd be in a in a second lean smaller and a smaller second lean against the house versus a wrap around mortgage right so in a wraparound situation we need to pay off personally yes because you say you have a you know hundred thousand dollar seconds right and a forty forty thousand dollar first technically right and the property is only worth say 90 you're up to 140.

yeah we need you to pay off that first for me to get in position right okay that is that's I guess that's where I got lost because I was like wait a minute in a rap situation you got to pay off the first yeah we were getting a lot of questions in the chat I I appreciate you guys uh so again we're in the numbers if I sit there and bought if you if you bought a 727 and you bought for 40 Grand whatever situation is and the balance of that first lien is 40 Grand you then create a new note save for you know 80 grand whatever 100 Grand I can come in buy that 100 000 note for a discount say 70 000 75 000 you then would pay off the first for 40 Grand you would collect 35 in your pocket we then Arlene because the fact that the other one's gone moves up the first position and now we're in first position of your new free note so so would you would you buy that would you buy that as if it was a first position lien or would you still buy it with it I would definitely place it that way yes yeah okay the risk level is less there because of the first lean it will be a person yeah okay right we'd have that understanding that the first is going to get paid off slow would put us into first position and Melissa did you have a question on that too well I had a question based off of the fact that let's say uh like Justin said we have a deal that has no equity but then we created money with it um we only financed it let's say you know the house is worth a hundred thousand and we sold it for 140 000 right you say you buy those how do you buy those since you're not buying against the LTV apparently we're basic by based on returns right right what the little TV is a factor but we want to look the fact that we're buying a bond initially right it's a bond with maturity and most of the time bonded Capital by yield so we're going to say what would our annual return be on the situation we're going to buy it based on the annual return 10 12 8 whatever the number is Catholic different things differently so that's one of the factors is making sure your interest rates are pretty good high number because the lower the interest rate the lower my discount has to be or more money right so if you're creating notes at 12 you're doing much better than someone creating eight percent going back to your thing with the equity um you know if it's a hundred and forty thousand dollar note and the house is only worth a hundred we're probably going to price that on the value of the house in that situation because because technically it's underwater uh according to just present value of the property so we're we're not going to you know we're not going to play the game where we think that the price is going to go up on the the value is going to go up on the house I and I'm not saying that's a bad game to play that's just not our game we're going to do it on today's values today's unpaid principal balance today's property value whatever it is right now does it make sense uh no because if you're saying that you can sell a note that um does not have any equity in it so can you or can't you yes you can but the pricing is going to be based on the lower of the two if if the property value is lower than the unpaid balance we're going to do the pricing based on the property value and vice versa and and what would that pricing look like it depends on state step two yeah it there's a lot of questions go into that um sorry somebody asked how to ask questions in the chat feel free to put in the chat we'll definitely answer as we can um so pricing based on state for us and we always place the fact that it may go non-performing so that means I may have to foreclose on it then different states have different regulations and rules and pricing on foreclosures where Texas is awesome Missouri is great go up to Chicago you're having more problems right Northeast is just disastrous California so many states out here have a long foreclosure process which means that I'm able to hold that property in fact everything else longer so my my return is going to be less I also have debt license to worry about so there's different things that go into the note side of buying things and if you're looking to learn about the note side um feel free to reach out to us we run a class along stuff about the stuff for note buyers but you guys as sellers you guys have to know the fact that every asset a little bit different based on price value of the house if this is a 40 000 house or a hundred and fifty thousand dollar property that changes my pricing yeah interest rate is a big deal uh which state it's in his big deal uh seasoning plays A Part uh down payment to some extent like Deb says about loan to value so all those things kind of go in and we've got a list of those kind of things yes we're getting to this stuff right yeah so one of the things we want to make sure you guys know is that there's a thing called a legal bounds too I I recently ran into a seller finance person it was going to sell me a note and they said here's the upb we're trying to figure out how they came up with the unpaid balance currently and what they did is included like property taxes they paid off well what you have to find out is that that's a separate dollar amount separate from the unpaid balance yeah balance follows the amortization schedule like a t and anything extra insurance is taxes anything corporate advances is part of illegal balance when system servicer is actually meant for notes they'll actually have a system where it shows your payments and what they call a next due date like an amortization schedule if they don't pay for three months the next due date doesn't move until the next payment's made so they haven't paid in two years the next payment gets applied two years prior okay for rental apartment.com if I say give me a payment history you guys will show me a pain Ministry but I don't know which one that applies to and there ends the problem especially if we have to foreclose on it and that's the thing all of all of that information is important for us in for our worst case scenario for which is for us is foreclosure so we have to have all that information has to be accurate and correct and up to date so that we can give it to the attorney so they can do the Foreclosure so that's that's a main focus for us as far as why it's important to track those payments the way that we'd like them to be tracked um and not even though we like but we need them to be tracked that way so that we can right if it goes up foreclosure prove the actual balance of the loan how do you prove it right what payments are all over the place and stuff like that um so one thing when we ask for our numbers which we'll share and we'll we'll share your link to a form we can give you they'll email you over the whole list of items um is we want to know them that you can go to a servicer and get the dashboard we have somehow on here you can explain a little bit if you have questions where you can really take a picture of that dashboard and it'll tell you all the numbers that we would ask for right we also provide you monthly statements notes from the the the borrower so they reject the borrower all those notes are there so the interactions and all of us note buyers wouldn't want want that information because it helps us know what the life alone is going on yeah yeah so the first question we've had too is how much are Note Services yeah well so we don't ever involved with because most of our loans are Bank originated is you guys can put these in the note agreement if that borrower pays for it guess what our price will actually be higher because we don't got to net that out pretty pretty significantly higher too I believe right I mean it's a pretty it's a pretty hefty uh increase I know when Dave and I talked about that note I had for sale um I mean it increased the the value of the note by like three or four thousand dollars so it's like oh wow because for the next 10 years I'm not paying a servicing fee I'm collecting my whole pni amount right right I mean luckily for me we were we were kind of taught to when we use our servicer to put that in the agreement that the servicer page or the borrower pays the servicer and that servicing fee can be a significant portion of that of that payment uh sometimes yeah sometimes not it's usually it's a flat fee so let's have so he'll chime in here yeah uh maybe you don't want to get into pricing I don't know but uh there he is let me uh flip it over here sorry guys there we go that flip over by a system over here so so how welcome um I appreciate being part of it um I do want to ask you a question about this pricing thing we would like to know from you how much does it cost for a note originator to charge to for the fee for a monthly servicing for a performing note with home key so with us with home key um we have an all-inclusive monthly fee which is 35 um that includes managing collecting the payment managing the escrows taking care of the tax statements at the end of the year if there is an underlying lien that you need us to manage for you we will also do that at the same price there's no additional cost um it's 35 flat fee we do charge a hundred dollar setup fee which goes to our service provider for tax certifications and things like that but thirty five dollars is all we charge and there are servicers out there who may charge a little bit less who may charge a little bit more but then it's not an all-inclusive fee they they tend to be more a la carte the more services you use the more you pay the less fewer Services you use the amount is a little bit less in our case it's all inclusive yeah so um we do have a question real quick about what information we need no buyers to buy I put in the chat a link for a form fill it out and you'll get email with all the data points we're going to get into in a few minutes what information we need as note buyers from you guys cool so guys this stuff is really cool stuff right and you can use a servicer like home key to set up a situation where you literally can send us the payment history servicing notes you can send everything we need all the data points to get to but before you get to that I want to make sure you guys figure one thing out please make sure that you're understanding that if you're selling a note like you're into over 40 Grand and we price it 50.

understand that 10 grand may not be a big amount but if you can do that four times in one year that's nip of the return is amazing right so you've got to make sure that you're probably when you see an offer from us calculate those adding return versus a one-time lump sum Roi what we're talking about at the time because it's a new world of stuff and we're looking to do a webinar and hopefully you guys all stay tuned we do webinars every other week but we've primarily been focused on Note buyers and teaching them stuff um so we wanted to were we working on getting a webinar on there about how to create a note a successful note to make sure you're licensed correctly and that's what we'll bring on Macs and stuff like that to talk about what you can and can't do such as the Dodge rank laws right you can't write a note to an owner owner-occupied property without certain restrictions there things like that will come into play and we'll talk more about that stuff on the upcoming Adventures just out of curiosity Justin Melissa do you guys have you heard of Don Frank do you know what that is um I get that it has its place um yeah right because the biggest thing for me for for me is my understanding is that the limitations of how many notes that we can create that we can originate um without having a an originator's license right so that's like a very big big legal document and there's things that we don't fully understand either that's part of it Max is the expert I always defer to him when I've got questions and I'll call him and say hey yeah that's that's the main reason I even use an rmlo and an attorney I'm just say hey here make sure I'm good yeah right max if you can tell me real quick what do you guys charge for underwriting a note to make sure it's dot-free compliant yeah great question Dave um standard underwrite is 679.

um and that's a bona fide fee that can be passed on to your borrower uh but your borrower can't pay it before being offered alone and so uh one of the doesn't know um we don't just underwrite for Dodd-Frank so I do a lot of commercial work and a lot of uh non-owner occupied work and so if you're ever in question as to why would you want to underwrite something if the law doesn't make you um I I could have a discussion with you and give you a lot of good reasons why uh just in a nutshell though a couple of the big ones would be like for instance we have an investor in New York that buys a lot of uh apartment buildings and basically flips them in and resells them to other investors they can be speculative Ventures we underwrite his borrowers to his standard that's the beauty of on owner occupied is then Dodd-Frank is out of the picture cfpb is out of the picture and you and I sit down together as an investment team and we set the criteria that you want us to underwrite your borrower buy uh and so what we're doing is we're ensuring your best interest from a risk of default standpoint uh the other thing that it's doing is it's creating a consistent um due diligence uh file for your Ventures and then when you want to go and resell those notes uh to somebody like Nathan and David um we've got files that you can present to those note buyers that demonstrate the professional consistency uh with which all of your borrowers are vetted and that can bring a lot of value to your note so uh Max so for those who don't know Max's Coley underwriter uh you can go to colorado.com um he's he can talk about all this stuff in much more detail than we can I know Michelle is asking about that Cindy thank you for jumping in there I have them do more than less um they're set up to handle all kinds of stuff but but you're right Dave mostly it's it's taking care of the payments and everything surrounding the payments that's that's the servicer's main job uh so right now you guys are in Texas are you guys looking to get licensed in a few more States as well yes we're awaiting Licensing in uh Georgia Tennessee Ohio um and then in January we'll apply for Florida as well um additionally we will enter Virginia Colorado and uh Indiana in uh February as well awesome so what is the problem with North Carolina I am not a big fan of North Carolina yet um they are a little bit strict their their audit requirements uh from what I've heard from other servicers do tend to be a little bit challenging and what's worse is the audits do happen every two years at a minimum and their auditor prefers to come down over to your home office sit there and audit the books versus just doing it from North Carolina itself because all our records are online anyway and we have to pay for their expenses their flight their hotel their food things like that goodness yes but but we do know other servicing companies that cover North Carolina and South Carolina yes oh okay there's some really good servicers that do cover those States Yeah we actually I have a list of them on my due diligence portal portal.jkp holdings.com servicers you can find it there the list um but I want to make sure that you know that so how really work with owner plans investors he understands your world that's why we brought him on we work on lending laws um Fair Credit Reporting Act and Equal Credit Opportunity Act so factra and ecoa state that you're not allowed to charge anything to a borrower prior to offering them a loan except for the only fee that's transferable to a borrower up front is a credit report fee and in our case we pull the credit for you so you can't even charge that to your borrower so a standard Dodd-Frank on the right is 679 we invoice you in two pieces we invoice you 119 up front and then we uh get with your borrower and we gather all of the documents necessary for a file we work the file all the way to completion um and then if we can get your borrower to meet Dodd-Frank requirements and certify them then we would invoice you the final 560 at loan approval so on the loan estimate um or the old uh HUD one if you're familiar with old style lending that loan estimate um you as the lender have to disclose all of the costs of credit to your borrower and so that 679 underwriting fee would be added onto your borrowers column uh as one of their loan origination expenses so you would front us the 119 we'd get your borrower qualified and then at closing uh that other 560 would uh you know actually pay basically the entire 679 would be a borrower's closing cost so you can recoup that cost at the closing table thanks awesome and I know I Max has been extremely helpful for me when I'm doing some originations and and like I said I've gone to it with questions can I do this is that okay and he'll let me know year nay uh yeah and just a quick uh side note to uh Nathan for anybody that appreciate that so all that good stuff thanks Cindy Michelle I would just wanted to come back to your question about sui act you actually act like refinancing yes yes yes we want to refinance you so you can go out and go and buy you know create more notes and then sell them to us again and again and again uh take whatever profit we don't care yeah we want you to make a profit uh we're in it for a different reason so we're more than happy to have you make a profit off of us selling it to us and then you go and do it again and again and again and we'll buy those all day long so what what makes it a valuable note we won't get into the legal side of it we don't understand the fact that for us we have performing and now performing assets and those need certain data points to figure these things out we're going to go through and quickly here but uh again in the chat there's a whole click this the form link click on it you actually go to a form fill it out real quick for us um phone number is not required but that will actually send you an email out directly from jkp holdings.com if you don't get it reach out to us and we'll go from there but what they'll do is it'll give you a link to either PDF or spreadsheet that you guys can get and actually just fill it out and send it to us if you want to make it nice and easy for you so what do we need and what do we not need let's start what we don't need um it's it's comical because in the last couple weeks we've seen a lot of notes with other clients coming up this webinar I don't need to know what kind of fridge is in the kitchen yeah don't care I don't care what rehab you did I don't care the borrower with a locksmith and his grandmother was the mayor I don't care credit score oddly enough I don't care we actually cared very little about the borrower themselves yep because Max or someone else underwritt new home um you you can't put them in a home that next year all of a sudden if they can't refi it they're looking at being foreclosed on and losing their home and so the federal government requires a certain uh standard of uh consistency and predictability with respect to how soon do the terms of this agreement change uh and so for Dodd-Frank uh one to four family occupancy think about keeping them in there for five years typically I actually prefer no balloon it's it's nothing else it's easier math yep in general I prefer not having a woman Dave do you care no I mean it's a math equation for us uh yeah but it pretty much doesn't matter to me because most likely we're not going to get there most time I understand most loans don't last 30 years they just could have paid off or if something happens to the house they sell it something always happens most people don't hold a house in 30 years so I'm not too too worried about that just so you guys know too when when we underwrite for you we can always produce an amortization table for you uh and give that to you right off the bat so if you're working with the Nathan and Dave that gives you kind of that opportunity to start looking at that thing ahead of time and and get a read on what it's going to look like yeah awesome yeah perfect um question about uh the formula hit the form it's a brand new form we have um we put it out yesterday uh at the caveat um I did have this private message sent to me no Nathan and I are two different companies uh we're just good friends so we would make two different offers for you FYI yeah we're Cooperative but we're also competitive right so um so another thing we mentioned here is that you make sure to give us the pi p i not the Piti we need tax Insurance you a lot of servicers a lot of them will get the paperwork from these kind of people and actually push them away because it's not as clean kind of Bank of America right that makes sense for everyone it looks a little different it's yeah paperwork is a little bit different and yeah they just they just want quick and easy yeah and then there's other ones that'll dig in and look at the actual documents uh individually because that often is what it takes so feel free to put in the Facebook Chat also the your website too if you want I know you're on there as well um Alex asked a question um any issues buying a note that's in first that has a second third or anything else behind it other discounts that come with that do you even care about the supported notes straight answer don't not really the only time they come to play is if we go to foreclosure right and it actually comes to sale their notes are going to get paid but we're gonna get paid off as well right we're going to get our own pay balance say it's 60 Grand we foreclose on it we're gonna have 60.

we can't collect anything above our unpaid balance or legal battle sorry we can't collect if it sells for 100 we can't collect the equity on that right if it works back to us we get the equity but we don't get the equity we ain't proceed above our legal bound because we're not entitled to that money so these answers no no don't care the the things that we would care about is um outstanding taxes or Municipal liens things like that those place above a first lien in order of priority so those things affect our bottom line so yes we care about those things but any subordinate liens seconds thirds whatever no doesn't doesn't really make a difference man there's so much more to cover yes this is great I love the conversation you guys are having I love the fact you guys are asking a lot of questions because this is a field I talk with just numerous times and he's still learning I'm finding a lot of you guys don't know that we exist or where to turn to sell that note and today we're talking about what you can do to turn to sell the note to any of us and what details you need you can take this money and go buy another property with it you can do anything you want with it the one caveat is some of you guys have some assets that are non-performing oddly enough we buy them too oh I'm crazy but we buy them too right so yeah both Dave and I started out really you know after the after the whole recession happens so we we both started out buying non-performing notes as our main business where people are not making payments living in the house that's what we started buying in 2010 uh and that's been a major part of our business for the last 10 12 years so if you've got one of those problem notes or let's say they're just not paying regular and they're just kind of a thorning your side we buy those too we call those scratch and dents so we'll buy the scratch and dents we bought a non-performers we buy the performers we buy pretty much anything so hit us up yeah so when you're looking at buying this kind of stuff there are two different worlds you play in we have the seasoned note and buying at the table at a closing table you can sell either one of them understand the fact that if it has the seasoning which just refers to a time period of proven payments we can buy it for actually a bit more money right than if it's brand new the wrist level is higher you can also sell part all the loan payments in the first five years or you can click the whole thing and buy sell the whole note off and do what you want with it one of the caveats we've seen recently and we actually have some two people who are Professionals in their space as well is creating what they call 80 20 loan we have 80 on first 20 in the second and you can sell the first off and keep the second for payments and sell the eighty percent of whatever loan you're creating for huge profits for you guys and then you've still got that 20 second that you can collect some money off that as well uh so you still have some cash flow but then you've got that big chunk that you can go back out and do whatever you're gonna do or whatever personal thing you've got maybe you're sending somebody off to college or maybe you're you know renovating your own kitchen or you know whatever it is you've got that money needs for uh we're here to help fill that Gap yeah absolutely so um I want to I'm just going to bring up uh some information here what we do have today um is a few special guests who are not gonna be on video and then two guests who actually be on video uh if you're familiar with no creation somebody twos or any of that kind of world you've probably used an underwriter well we have Max from quality underwriter on he'll be all video uh but he's gonna be discussing things or answering questions we need to to go to them we also have somehow who runs home key servicing uh so how is a service provider who will act like a landlord for rental properties but for note space we're going to get into why a server series P for us as well as for you guys as we go along away from it and Sohail is that's one Service Company there's a bunch out there uh we happen to have soil here he can answer all kinds of questions he'd be a great resource for you uh if you move your services over to him fantastic that's that's good for him uh good for us and we'll talk about why that's good for us as well we'll get into that awesome so let me uh switch over here uh we should be good we have some special guests on right now um I mean just make sure we got going on we have uh two guest letters right now that we are really excited about right um we have Justin and Melissa hopefully you guys are there and we all have her I'm muted so um what we want to talk about today with you guys is this idea of you guys create notes and create dollars out of thin air which I think is awesome you're still muted can you Melissa can you share a little bit about how you got started in this idea of creating notes Okay so please forgive me because some of the things that you are going to see are probably going to make you cringe like the fact that I use apartments.com that's okay definitely open to doing more better as one of my real estate Associates say um I've only been in this market for about two and a half years so it's been a learning game right it's definitely been a learning curve um my first deal was kind of just dropped in my lap and I feel like God says okay you're done doing wholesaling you're smarter than this this is what I want you to do you know and it just really after learning this strategy I was able to get out of the Rat Race and create millions of dollars in like 18 months so it was life-changing for me very fast um I do specialize mostly on getting subject twos and then doing an owner finance with those subject twos um and I get 20 down and I create a great monthly spread for the most part um and yeah everybody pays through apartments.com and it's a good life however I do often find myself uh cash poor right so I'm I'm like you know now I've gotten a hotel that I'm looking at and I've created all of these millions in in notes and I wouldn't mind cashing some of them out so I could get some cash to reinvest into this hotel that I'm looking at so hopefully learning all this by the end of this uh session I'll be able to do that yeah awesome we may have to spread this out into a couple of webinars because there's there's a lot of information but you're in the right place this is this is great and we want to remind you guys if you guys watch this video in your middle of it this will be on YouTube we'll be on the Facebook page uh be on our website uh but yeah YouTube channel all the good stuff is there uh just look up jkp Holdings on else uh on YouTube you'll find this video so Justin can you share a little bit about your background how did you get involved with notes uh very very similar very similar way I uh I started off wholesaling and I just man I just really didn't like it I was cold calling and you know it was like offering these 50 deals or 50 for cash and I just I just didn't like it and then I I kind of discovered the more creative route that you could take and just making win-wins for owners and you know for buyers and sellers making win-win for us you know I just try to make as many um it seemed like I could help more people that way um and and help them faster There Was You know I didn't have to raise as much Capital you know and a lot of times when I did raise the capital I was able to you know very very similar to um very similar to what Melissa was saying you know buying subject two and then if I had to come out of pocket any cash I just turn around and get that cash back from an owner finance buyer um a lot of times but sometimes you know we've flipped a couple of houses that we just you know that we couldn't find buyers for and we just ended up owner financing them and then you know we were like well we can sell it we've heard that you can sell notes so you know eventually you know and uh I was you know earlier this week I actually sold my first note so I've been through the process um but as soon as I opened up that can of worms it was like holy cow there's so much more to this than than I even knew yeah and you know what I went through the exact same thing I started creating these notes in 2008 in in kind of all over Midwest Ohio Indiana Michigan and and it was like okay there's got to be a way to cash out of these and I had heard rumors you know I'd heard these stories about people that buy notes and I went to a um a training seminar in 2009 and it just blew my mind I could just all this huge secondary Market that I didn't know existed I went to uh to a conference later that year uh down in Louisiana and and everybody's you know talking about this thing that I just barely learned about and yeah it's it's real and it's a it's a very vibrant Market yeah one of my first deals I actually traded equity in in two houses for an owner finance house on the back end and so I had all this Equity sitting there that I ended up selling and making all my money in the front end because I sold the other two houses but then I still had this other one sitting there and I was like well that's all my money that's tied up still sitting there yeah um and that ended up being the one that I finally sold and I was like oh well that wasn't as hard as I thought it was going to be yeah um but there was there was just some intricacies that I had to had to learn and kind of get punched in the mouth and keep on rolling with okay awesome so we want to get into a little bit more of the details of this stuff um to make sure those are watching you guys will what we're talking about here so what people get interchange words a lot of times right so there's this thing called land contract contract for deed we also have a lease option we also have you know a idea trust all these different words that mean different things but generally means the same thing right if I say listen is it a mortgage or land contract you may say why does it matter well in legal sides if a woman goes not performing that does play a role certain states don't allow land contracts you talk to people in Texas they say what are you talking about right um I have no idea what a land contract yeah you talked in Ohio Indiana it's all over the place there Michigan right if you go to Louisiana it's called a bond for deed if you go uh one of the Carolinas I think it calls in an agreement for deed they're all basically the same thing for our purposes we we kind of lump them together and call it contract for deed or cfd yep and we even know the difference we would ask you guys to let us know what it is if it's a mortgage or not um just make sure you tell us what it is because we have to price it differently and certain states are actually discouraging land contracts with the attorney with the judges so in certain situations where the land contract can't be foreclosed on or can't be evicted you actually have to a foreclosure depending on the numbers and that doesn't necessarily mean it's a dead deal it just means we just need to know what it is up front so we know what we're going to get into here if we need to convert that over to a mortgage at some point or or something else but we have options we have things we can do uh we just need to know what it is getting started we lost them with it for a couple seconds Melissa whoops hopefully she can jump back on we'll switch over uh so when you guys are when you guys were talking about that I didn't even realize that we could sell a leaf option the same way we would sell a a regular mortgage note um because I do have lease options but you know we we like to take what we we like to see our lease options as the dating as as dating our tenants before we move them into owner finance yeah um and and it actually works out really well for us it's you know we get to capture you know all the all the tax benefits of being a landlord originally and then we switch over to an owner finance deal um but I didn't you know my concern was always well dang you know if it's a lease option I can't cash out of it because I can't sell it because I don't have you know they have the option yeah yeah so short answers yeah we'll buy we'll buy lease options with a lease option it's a little bit more particular uh depending on the terms of the contract a lot of they're all different you know different lease options are written differently so we just need to read through the agreement and understand what's in there but the short answer yeah we'll buy lease options as well we're probably going to do the same thing and flip it over to uh to either a land contract contract for deed whatever you want to call it or to a deed of trust or a mortgage note uh we'll probably convert it to something else sometime in the future but yep short answer yeah we'll buy that interesting okay we had a question here too uh Kevin yeah Kevin asked uh he does Private living for 12 months or less um is there any advantage of selling short-term notes in our marketable if a note is 12 months five months 30 years 20 years it's math equation right so um anything you want to ask feel free to put in the chat as well but yeah we can price it you may get a significant discount you may not we run everything through our model we figure these kind of things out right um it's remarkable absolutely the world of notes is really buying it as the numbers right we base our deals on numbers where we're going to get into you guys based on dollars um and we're gonna we thought that Justin earlier before we went on and that idea of facing a dollar is may make sense in some worlds but we're going to show you why it makes sense to do it based on returns better so um the other question we have from it was King divert a note of a land contract into a deitrust absolutely it's done very regularly um and we have Max on audio but he can tell you about that in a short while but if you need to um you can definitely convert that over call it's called call the underwriter um go to the website and you can convert any land contract over to a note so and and like even Justin you're saying you need to go to a lease option and then convert them over um you don't need to I mean that's fine and if you want to date them for a little while before you make it permanent I get that uh but you don't have to you could just you could just start off with a do you trust a mortgage whatever whatever it is in that state is it is it is it as valuable that way um is the note as valuable being a lease option over being uh owner finance does it does that affect the value of that of that deal um so probably an order of value the lease option is probably going to be on the bottom of that um again not to say that it's not valuable but I'm probably gonna pay more for a Data Trust than I am for a lease options okay feedback is that me yeah I'm not sure who that was but um Melissa's back welcome back hey Melissa over here it's pretty much the Story of My Life um quick question about the lace option though okay so let's say that we we did a lease option with someone and we met you guys and you're like okay we'll pay more for days of trust and not so much for lease options could we go back to that lease option um buyer and read you know redo the deal like start a DOT yep absolutely and then sell it to you okay absolutely definitely yeah we would recommend so yeah so so so kind of kind of you know piggybacking off what she's saying a lot of times what we do is when we advertise for uh the owner financed buyers we have uh our lease option is say five percent five percent down and then our uh owner finance would be 10 to 15 down um would based kind of like what she's saying if I took the five percent down and then in a year say okay you still got on-time payments let's go ahead and convert it without you coming with the rest of the down payment um would that be something that would and then and then immediately turn around and you know call you guys and say hey I've got this owner finance uh situation or or deal for sale I guess it'd be a note at that point would that affect anything so a couple of things I'll Dave I'll give you your in a sec but so uh 10 down is better than five percent down for sure of course you've got now 12 years 12 months of pay history though as well something uh so even even though even though that's technically rental payments uh yeah no they're making regular seasoning right right or even rental payments for seasoning yeah and you may say listen I have two payments but then you say listen I have 12 month rental payments I can prove that's more attractive than some brand new person right think about if you're buying a rental property if you're gonna buy a performing rental right what do you do with the situation where the you know if property's already rented out for a year you feel good about that rental yeah or if it's brand new rental you know buy it perform a rental in the radio it's not so trackable so a lot of mine kind of offsets that a bit the five percent down oh okay that was that was gonna be my next question because a lot of times we wait for them to come up with the rest of the down payment to convert them over but it sounds like we'd be just fine just moving them over into an owner owner finance as it is yeah and and so maybe that's the next thing we should get into David we've had a another question about that about what kind of terms we're looking for that kind of thing maybe that's the next step here yep go narrow checklist here so go ahead and start it off quick up yeah oh you want me to Sir hey go ahead sorry okay so we're looking at a few different things when we're looking at a note um down payment is is the first thing so the bigger the down payment the better uh it shows that that person's got skin in the game and you guys all know this this is this is what you do uh but that bigger than down payment the more skin in the game um the safer it is for somebody to take that on and have confidence that they're going to continue to make payments long term so that's that's number one down payment bigger the better uh I would say as a general rule I would go ten percent Dave you looking at anything different or is that about right it's weird right with the seller France world where Bank of Virginia notes this never was a problem was never an issue so it then now the world is I'm more aware about LTV now because of what's going on out there than actually down payment per se so on a five thousand dollar I would think more percentage-wise so if that note is five grand but it's a fifty dollar note versus a heart attack to me that percentage is big but I can figure out the percentage why so down payment will allow me to figure out the percentage that was down made for me that's more attractive than a dollar amount yeah a good point before we get to our list I wanted to make sure that you guys have some more general knowledge before we dive into it and we're going to have a form I'll put it in the chat box here for you guys that will um allow you to get the full list of items that we want um any nope I wouldn't want actually so one thing you have to figure out is are you a borrower or a lender and what I mean by that is a lot of you guys out there are 72 buyers where you bought a property subject to and you're technically a borrower to the other one but then you're a lender to the new owner and there's some Dodd-Frank rules behind what you're doing to make sure it stayed legal we're not going to get too deep into that right now but after the question about that we can kind of hit on things but we got to make sure that if your borrower and the lender we need to make sure we're buying that second lien that's created for that cfd whatever you're creating is able to pay off the first and the contract shows the fact that we can do that in addition to that making sure you let the borrower know that the first lien is still there you need to let the borrower know that the subject you lean is there or because they're subject to situations if you have questions we have Max on that explain a little bit more about that but you need to make sure your borrowers know that the first lien on there um similar things are um the amortization upb we're going to get into what that means but understand there's a upb unpaid principle balance as the note goes down and that should stay the amortization wise and that relates to a payment right when you make a payment that's 742 and 36 Cents if they pay 740 that wasn't a full payment it sounds foolish but it like it affects the way the balloon on the end of the payment is even that change because if you take 10 cents and multiply it by 360 payments there's a balloon at the end of it and that will change everything out and if it gets contested in foreclosure we buy and start defaulting that all come back into play so I I have a quick question I can go back to the subject two question uh the subject to discussion and correct me if I'm wrong but if I have an underlying mortgage and then I have a rap note on it and you buy that second lean note it would wipe out the first and make you the first lien holder correct yes yeah okay and it has to happen that way right yeah I have to yeah I guess it does well I mean it doesn't have to we prefer to put that way yeah right because I mean again another thing is if you're buying a first lien or buying a second lien the pricing changes just like seasoning so the first lien is not as risky is the second which means I'm gonna buy that second at a much deeper discount okay so let's let's say I have an underlying lien that's staying near the same as the if if I because I'll I'll buy I'll buy subject to um houses that have no equity in them and then I'll wrap them you know obviously I can't I can't sell just that second lean right you can actually I love it okay I guess I'm confused if I sell that second lien listen let's use real numbers here you bought a 72 profit for 40 Grand you're into it you rewrote a note on that property say a hundred thousand dollars so you have total debt of 140 000.

if I sit there and give you say 80 grand for it you can take 40 that grand pay off the first which I I would I would want and then you get 40 Grand in your pocket and you walk away and then I'm in first position now right and if I don't and if I don't pay off that first lien wouldn't that person get paid off at closing so there's no closing here right we're not doing a title closing here at all this is not a property sell this is a note sale just notice okay I love it I love this and is there is there any is there any legality there that I should be you know concerned with you know with in a situation like that because if that first note gets called I mean I'm I'm technically I'm I'm out of the Woodworks there what why do why why would I pay off that lead that we would pay off the first inside of an escrow account of account in that contract with you guys Hey listen how do you pay off balance that first make sure it's included in our contract would say this would happen and we'd probably run it through like an escrow or attorney to ensure that money gets DVD correctly okay so the quasi-closing I kind of set up that's how I would probably do an inspiration I haven't done it yet but that's my thought process okay so so why would why would somebody only sell the second lien you can't why would somebody why would somebody even buy this like just a secondly so second lien holders are a little bit of a different it's a it's a different spin on the same thing that we're talking about they have all kinds of reasons Dave go ahead I don't do seconds let's say you have a lot of loans were created with piggyback right 80 20 loans right you have 100 property you we can use a million dollar Problem whatever the first one's a like a 60 the other one's such one right 20 grand total 80 grand so now you have up to 80 grand 100 property you have LTV at 80 which is not the best but it's fair now I can go and buy that second lien for 20 grand or I can buy for 10 grand save right and I can start receiving payments on that second I'm not as secure as the first right I can get I won't get into all that stuff but I can buy it but the problem is if that property drops in value my second lien gets squeezed with Equity but that's it that's that'd be in a in a second lean smaller and a smaller second lean against the house versus a wrap around mortgage right so in a wraparound situation we need to pay off personally yes because you say you have a you know hundred thousand dollar seconds right and a forty forty thousand dollar first technically right and the property is only worth say 90 you're up to 140.

yeah we need you to pay off that first for me to get in position right okay that is that's I guess that's where I got lost because I was like wait a minute in a rap situation you got to pay off the first yeah we were getting a lot of questions in the chat I I appreciate you guys uh so again we're in the numbers if I sit there and bought if you if you bought a 727 and you bought for 40 Grand whatever situation is and the balance of that first lien is 40 Grand you then create a new note save for you know 80 grand whatever 100 Grand I can come in buy that 100 000 note for a discount say 70 000 75 000 you then would pay off the first for 40 Grand you would collect 35 in your pocket we then Arlene because the fact that the other one's gone moves up the first position and now we're in first position of your new free note so so would you would you buy that would you buy that as if it was a first position lien or would you still buy it with it I would definitely place it that way yes yeah okay the risk level is less there because of the first lean it will be a person yeah okay right we'd have that understanding that the first is going to get paid off slow would put us into first position and Melissa did you have a question on that too well I had a question based off of the fact that let's say uh like Justin said we have a deal that has no equity but then we created money with it um we only financed it let's say you know the house is worth a hundred thousand and we sold it for 140 000 right you say you buy those how do you buy those since you're not buying against the LTV apparently we're basic by based on returns right right what the little TV is a factor but we want to look the fact that we're buying a bond initially right it's a bond with maturity and most of the time bonded Capital by yield so we're going to say what would our annual return be on the situation we're going to buy it based on the annual return 10 12 8 whatever the number is Catholic different things differently so that's one of the factors is making sure your interest rates are pretty good high number because the lower the interest rate the lower my discount has to be or more money right so if you're creating notes at 12 you're doing much better than someone creating eight percent going back to your thing with the equity um you know if it's a hundred and forty thousand dollar note and the house is only worth a hundred we're probably going to price that on the value of the house in that situation because because technically it's underwater uh according to just present value of the property so we're we're not going to you know we're not going to play the game where we think that the price is going to go up on the the value is going to go up on the house I and I'm not saying that's a bad game to play that's just not our game we're going to do it on today's values today's unpaid principal balance today's property value whatever it is right now does it make sense uh no because if you're saying that you can sell a note that um does not have any equity in it so can you or can't you yes you can but the pricing is going to be based on the lower of the two if if the property value is lower than the unpaid balance we're going to do the pricing based on the property value and vice versa and and what would that pricing look like it depends on state step two yeah it there's a lot of questions go into that um sorry somebody asked how to ask questions in the chat feel free to put in the chat we'll definitely answer as we can um so pricing based on state for us and we always place the fact that it may go non-performing so that means I may have to foreclose on it then different states have different regulations and rules and pricing on foreclosures where Texas is awesome Missouri is great go up to Chicago you're having more problems right Northeast is just disastrous California so many states out here have a long foreclosure process which means that I'm able to hold that property in fact everything else longer so my my return is going to be less I also have debt license to worry about so there's different things that go into the note side of buying things and if you're looking to learn about the note side um feel free to reach out to us we run a class along stuff about the stuff for note buyers but you guys as sellers you guys have to know the fact that every asset a little bit different based on price value of the house if this is a 40 000 house or a hundred and fifty thousand dollar property that changes my pricing yeah interest rate is a big deal uh which state it's in his big deal uh seasoning plays A Part uh down payment to some extent like Deb says about loan to value so all those things kind of go in and we've got a list of those kind of things yes we're getting to this stuff right yeah so one of the things we want to make sure you guys know is that there's a thing called a legal bounds too I I recently ran into a seller finance person it was going to sell me a note and they said here's the upb we're trying to figure out how they came up with the unpaid balance currently and what they did is included like property taxes they paid off well what you have to find out is that that's a separate dollar amount separate from the unpaid balance yeah balance follows the amortization schedule like a t and anything extra insurance is taxes anything corporate advances is part of illegal balance when you collect Leo balance you can make an arrangement with the borrower or if it goes foreclosure I can add it to my balance at the auction so make sure you have the unpaid balance there so and then the unpaid balance uh that's and Melissa I wouldn't I don't want to pick on you but I just I just to point it out that's the problem with apartments.com is that it doesn't calculate principle and interest all its tracking is monthly payment which is good and we we definitely want to know that number but we also because we have an amortization schedule to follow we need to know how much principle and how much interest is being paid every month which is where a servicer comes in so where to get let me let me jump one thing before we get there yeah you know the fact that please don't give us Piti for those who don't know principal interest tax Insurance all we care about is principal and interest why tax insurances are something we don't receive as no buyers I'm surely you guys we don't receive it you guys may and then it gets paid out right our servicer typically does an escrow and it pays that money out so we don't see that all we care about is that personal interest which does not change no matter what happens with taxes or the the insurance part right so all these kind of deals of numbers and making sure that you don't receive part payment or you pay they receive more and it makes sure it applies correctly using different services are great there are software out there to manage these things right however like landlording we have things called note servicers note servicers will reach out to the borrower they'll send monthly statements to the borrower the resolve issues with the borrower they'll if there's a defaulted loan they'll reach out and try to negotiate with them so I say mods there are property manager in the new world what they also do is provide a system of tracking the payments on Lake apartments.com where it's a rental system servicer is actually meant for notes they'll actually have a system where it shows your payments and what they call a next due date like an amortization schedule if they don't pay for three months the next due date doesn't move until the next payment's made so they haven't paid in two years the next payment gets applied two years prior okay for rental apartment.com if I say give me a payment history you guys will show me a pain Ministry but I don't know which one that applies to and there ends the problem especially if we have to foreclose on it and that's the thing all of all of that information is important for us in for our worst case scenario for which is for us is foreclosure so we have to have all that information has to be accurate and correct and up to date so that we can give it to the attorney so they can do the Foreclosure so that's that's a main focus for us as far as why it's important to track those payments the way that we'd like them to be tracked um and not even though we like but we need them to be tracked that way so that we can right if it goes up foreclosure prove the actual balance of the loan how do you prove it right what payments are all over the place and stuff like that um so one thing when we ask for our numbers which we'll share and we'll we'll share your link to a form we can give you they'll email you over the whole list of items um is we want to know them that you can go to a servicer and get the dashboard we have somehow on here you can explain a little bit if you have questions where you can really take a picture of that dashboard and it'll tell you all the numbers that we would ask for right we also provide you monthly statements notes from the the the borrower so they reject the borrower all those notes are there so the interactions and all of us note buyers wouldn't want want that information because it helps us know what the life alone is going on yeah yeah so the first question we've had too is how much are Note Services yeah well so we don't ever involved with because most of our loans are Bank originated is you guys can put these in the note agreement if that borrower pays for it guess what our price will actually be higher because we don't got to net that out pretty pretty significantly higher too I believe right I mean it's a pretty it's a pretty hefty uh increase I know when Dave and I talked about that note I had for sale um I mean it increased the the value of the note by like three or four thousand dollars so it's like oh wow because for the next 10 years I'm not paying a servicing fee I'm collecting my whole pni amount right right I mean luckily for me we were we were kind of taught to when we use our servicer to put that in the agreement that the servicer page or the borrower pays the servicer and that servicing fee can be a significant portion of that of that payment uh sometimes yeah sometimes not it's usually it's a flat fee so let's have so he'll chime in here yeah uh maybe you don't want to get into pricing I don't know but uh there he is let me uh flip it over here sorry guys there we go that flip over by a system over here so so how welcome um I appreciate being part of it um I do want to ask you a question about this pricing thing we would like to know from you how much does it cost for a note originator to charge to for the fee for a monthly servicing for a performing note with home key so with us with home key um we have an all-inclusive monthly fee which is 35 um that includes managing collecting the payment managing the escrows taking care of the tax statements at the end of the year if there is an underlying lien that you need us to manage for you we will also do that at the same price there's no additional cost um it's 35 flat fee we do charge a hundred dollar setup fee which goes to our service provider for tax certifications and things like that but thirty five dollars is all we charge and there are servicers out there who may charge a little bit less who may charge a little bit more but then it's not an all-inclusive fee they they tend to be more a la carte the more services you use the more you pay the less fewer Services you use the amount is a little bit less in our case it's all inclusive yeah so um we do have a question real quick about what information we need no buyers to buy I put in the chat a link for a form fill it out and you'll get email with all the data points we're going to get into in a few minutes what information we need as note buyers from you guys cool so guys this stuff is really cool stuff right and you can use a servicer like home key to set up a situation where you literally can send us the payment history servicing notes you can send everything we need all the data points to get to but before you get to that I want to make sure you guys figure one thing out please make sure that you're understanding that if you're selling a note like you're into over 40 Grand and we price it 50.

understand that 10 grand may not be a big amount but if you can do that four times in one year that's nip of the return is amazing right so you've got to make sure that you're probably when you see an offer from us calculate those adding return versus a one-time lump sum Roi because that will dramatically increase your returns no matter what you do and you can do if you could do this four times a year season it for two months sell it to using it sell it over and over again that 10 grand on 40 multiplies and and yes we're more than happy to buy notes from you all through the air any day twice on Sunday I tell you guys a funny if anything about the servicer I I was because I've always used a servicer and I didn't know that there was any other way um I had no idea how much my the my borrowers actually paying I didn't even know that they were paying for the service thing I know we originally put it in there but I had to actually reach out to Sohail because he Services my nodes and I I got I got one of their statements and I was like oh well this makes sense I was worried about taxes and all this other stuff and all that stuff was just taken care of by Sohail and just made it so much easier and again the borrower paid for it hey there you go excellent nice so um just looking at some of the questions we got here um what states did servicers Cover um understand the fact that you're right servicers are cutting license in certain States and don't need license in other states every servicer is a little different um some serverses are not in all 50 states but you may not need all 50 states if your originating notes only in Texas that's all you care about right I know Justin uses so how on home key if you're reaching in in Texas just call home key and they can do it I know so how is working on adding additional licenses on um but yes so yes States for servicers matter so um I know we had another question from Michelle about um servicing services I would say that your services from your servicer is more about tracking the notes right they're not going to do the they can sign up for door knocks stuff like that but they're really just a property manager to collect and deal with issues and they I would have them do in yeah have them do more than less um they're set up to handle all kinds of stuff but but you're right Dave mostly it's it's taking care of the payments and everything surrounding the payments that's that's the servicer's main job uh so right now you guys are in Texas are you guys looking to get licensed in a few more States as well yes we're awaiting Licensing in uh Georgia Tennessee Ohio um and then in January we'll apply for Florida as well um additionally we will enter Virginia Colorado and uh Indiana in uh February as well awesome so what is the problem with North Carolina I am not a big fan of North Carolina yet um they are a little bit strict their their audit requirements uh from what I've heard from other servicers do tend to be a little bit challenging and what's worse is the audits do happen every two years at a minimum and their auditor prefers to come down over to your home office sit there and audit the books versus just doing it from North Carolina itself because all our records are online anyway and we have to pay for their expenses their flight their hotel their food things like that goodness yes but but we do know other servicing companies that cover North Carolina and South Carolina yes oh okay there's some really good servicers that do cover those States Yeah we actually I have a list of them on my due diligence portal portal.jkp holdings.com servicers you can find it there the list um but I want to make sure that you know that so how really work with owner plans investors he understands your world that's why we brought him on we work on a lot of servicers a lot of them will get the paperwork from these kind of people and actually push them away because it's not as clean kind of Bank of America right that makes sense for everyone it looks a little different it's yeah paperwork is a little bit different and yeah they just they just want quick and easy yeah and then there's other ones that'll dig in and look at the actual documents uh individually because that often is what it takes so feel free to put in the Facebook Chat also the your website too if you want I know you're on there as well um Alex asked a question um any issues buying a note that's in first that has a second third or anything else behind it other discounts that come with that do you even care about the supported notes straight answer don't not really the only time they come to play is if we go to foreclosure right and it actually comes to sale their notes are going to get paid but we're gonna get paid off as well right we're going to get our own pay balance say it's 60 Grand we foreclose on it we're gonna have 60.

we can't collect anything above our unpaid balance or legal battle sorry we can't collect if it sells for 100 we can't collect the equity on that right if it works back to us we get the equity but we don't get the equity we ain't proceed above our legal bound because we're not entitled to that money so these answers no no don't care the the things that we would care about is um outstanding taxes or Municipal liens things like that those place above a first lien in order of priority so those things affect our bottom line so yes we care about those things but any subordinate liens seconds thirds whatever no doesn't doesn't really make a difference man there's so much more to cover yes this is great I love the conversation you guys are having I love the fact you guys are asking a lot of questions because this is a field I talk with just numerous times and he's still learning what we're talking about at the time because it's a new world of stuff and we're looking to do a webinar and hopefully you guys all stay tuned we do webinars every other week but we've primarily been focused on Note buyers and teaching them stuff um so we wanted to were we working on getting a webinar on there about how to create a note a successful note to make sure you're licensed correctly and that's what we'll bring on Macs and stuff like that to talk about what you can and can't do such as the Dodge rank laws right you can't write a note to an owner owner-occupied property without certain restrictions there things like that will come into play and we'll talk more about that stuff on the upcoming Adventures just out of curiosity Justin Melissa do you guys have you heard of Don Frank do you know what that is um I get that it has its place um yeah right because the biggest thing for me for for me is my understanding is that the limitations of how many notes that we can create that we can originate um without having a an originator's license right so that's like a very big big legal document and there's things that we don't fully understand either that's part of it Max is the expert I always defer to him when I've got questions and I'll call him and say hey yeah that's that's the main reason I even use an rmlo and an attorney I'm just say hey here make sure I'm good yeah right max if you can tell me real quick what do you guys charge for underwriting a note to make sure it's dot-free compliant yeah great question Dave um standard underwrite is 679.

um and that's a bona fide fee that can be passed on to your borrower uh but your borrower can't pay it before being offered alone and so uh one of the lending laws um Fair Credit Reporting Act and Equal Credit Opportunity Act so factra and ecoa state that you're not allowed to charge anything to a borrower prior to offering them a loan except for the only fee that's transferable to a borrower up front is a credit report fee and in our case we pull the credit for you so you can't even charge that to your borrower so a standard Dodd-Frank on the right is 679 we invoice you in two pieces we invoice you 119 up front and then we uh get with your borrower and we gather all of the documents necessary for a file we work the file all the way to completion um and then if we can get your borrower to meet Dodd-Frank requirements and certify them then we would invoice you the final 560 at loan approval so on the loan estimate um or the old uh HUD one if you're familiar with old style lending that loan estimate um you as the lender have to disclose all of the costs of credit to your borrower and so that 679 underwriting fee would be added onto your borrowers column uh as one of their loan origination expenses so you would front us the 119 we'd get your borrower qualified and then at closing uh that other 560 would uh you know actually pay basically the entire 679 would be a borrower's closing cost so you can recoup that cost at the closing table thanks awesome and I know I Max has been extremely helpful for me when I'm doing some originations and and like I said I've gone to it with questions can I do this is that okay and he'll let me know year nay uh yeah and just a quick uh side note to uh Nathan for anybody that doesn't know um we don't just underwrite for Dodd-Frank so I do a lot of commercial work and a lot of uh non-owner occupied work and so if you're ever in question as to why would you want to underwrite something if the law doesn't make you um I I could have a discussion with you and give you a lot of good reasons why uh just in a nutshell though a couple of the big ones would be like for instance we have an investor in New York that buys a lot of uh apartment buildings and basically flips them in and resells them to other investors they can be speculative Ventures we underwrite his borrowers to his standard that's the beauty of on owner occupied is then Dodd-Frank is out of the picture cfpb is out of the picture and you and I sit down together as an investment team and we set the criteria that you want us to underwrite your borrower buy uh and so what we're doing is we're ensuring your best interest from a risk of default standpoint uh the other thing that it's doing is it's creating a consistent um due diligence uh file for your Ventures and then when you want to go and resell those notes uh to somebody like Nathan and David um we've got files that you can present to those note buyers that demonstrate the professional consistency uh with which all of your borrowers are vetted and that can bring a lot of value to your note so uh Max so for those who don't know Max's Coley underwriter uh you can go to colorado.com um he's he can talk about all this stuff in much more detail than we can I know Michelle is asking about that Cindy thank you for jumping in there I appreciate that so all that good stuff thanks Cindy Michelle I would just wanted to come back to your question about sui act you actually act like refinancing yes yes yes we want to refinance you so you can go out and go and buy you know create more notes and then sell them to us again and again and again uh take whatever profit we don't care yeah we want you to make a profit uh we're in it for a different reason so we're more than happy to have you make a profit off of us selling it to us and then you go and do it again and again and again and we'll buy those all day long so what what makes it a valuable note we won't get into the legal side of it we don't understand the fact that for us we have performing and now performing assets and those need certain data points to figure these things out we're going to go through and quickly here but uh again in the chat there's a whole click this the form link click on it you actually go to a form fill it out real quick for us um phone number is not required but that will actually send you an email out directly from jkp holdings.com if you don't get it reach out to us and we'll go from there but what they'll do is it'll give you a link to either PDF or spreadsheet that you guys can get and actually just fill it out and send it to us if you want to make it nice and easy for you so what do we need and what do we not need let's start what we don't need um it's it's comical because in the last couple weeks we've seen a lot of notes with other clients coming up this webinar I don't need to know what kind of fridge is in the kitchen yeah don't care I don't care what rehab you did I don't care the borrower with a locksmith and his grandmother was the mayor I don't care credit score oddly enough I don't care we actually cared very little about the borrower themselves yep because Max or someone else underwritt the paper that it's legal and it's proposable we want to make sure that the collateral is proposable so our attorneys will review it as well make sure it's foreclosable legal paper because performing assets great doesn't matter if performs forever it matters if it defaults that's when the paperwork kicks in so um if you have questions again feel free to put in uh comments or or send us an email and you'll get that um we also have lean position matters why we talked before about the fact that first second third fourth we can buy a fourth lien understand we're going to buy a sniffing a discount because if it goes to foreclosure and there's not enough money to pay it we get wiped out it can happen ritual balance is another item we require we need to know what the original balance not what you sold it for but what the original balance was of the no creative so after the down payment what was that amount that you are financing the amount that you're actually financing yep turn what was the original terminal was it 10 years 120 months was it 360 months right what was that term when was the first payment date what that helps us do is figure out when the maturity date is going to be right if you originate this date usually a month and a half later or whatever it is we knew what the first payment was made and going back to the term we we deal a number of months so we talk about 240 months or 360 months or something like that if you just have it in years that's fine as long as it's like a round number so if it's 18 years that's that's fine we'll figure out how many months that is but if it's 18 years and six months we need to know that we need to know that too right would it would it not be easier to just give you the maturity date so yeah that too so there's ways to figure out how many months a term is by using formulas and financial calculator we can right and if you're not able to do it let us know we can either figure it out for you or we can there's different ways to figure out the other numbers through math through a financial calculator or through spreadsheet numbers to figure out what that number is but if you have it which should be on the Note the term should be on the note first payment number payments maturity date um and a balloon amount which will get you right when you know the balloon and how much that balloon is for because if it blooms at a certain date a certain dollar amount that changes the monthly payment and the numbers in between and we're we're mostly we are going to ask for maturity date as well um it helps us just to make sure it's accurate yeah there wasn't there wasn't a mistake where it's one month one way or the other modification or something like that let me let me ask you maybe this is a question for Max but like in in a situation where we create a note that's amortized for 30 years but there's a balloon at 10 years uh I I mean I I've never even done that for the reason of I thought it was you know I thought it was more beneficial to put it out for 360 months go ahead Max yeah yeah the biggest issue is uh there are certain risky features that are prohibited in Dodd-Frank uh and then there's other features that are you can do them with limitations if this then you can do this but if this you can't do this so typically in Dodd-Frank so we're talking owner occupied one to four family you're allowed to balloon after the 60th month so if you do want to do balloons just kind of try to think about it this way the the entire Spirit intent and flavor of Dodd-Frank is to prevent uh home owners right families from being displaced and creating another 2007 housing bubble burst so uh when when we talk about putting somebody into a brand new home um you you can't put them in a home that next year all of a sudden if they can't refi it they're looking at being foreclosed on and losing their home and so the federal government requires a certain uh standard of uh consistency and predictability with respect to how soon do the terms of this agreement change uh and so for Dodd-Frank uh one to four family occupancy think about keeping them in there for five years typically I actually prefer no balloon it's it's nothing else it's easier math yep in general I prefer not having a woman Dave do you care no I mean it's a math equation for us uh yeah but it pretty much doesn't matter to me because most likely we're not going to get there most time I understand most loans don't last 30 years they just could have paid off or if something happens to the house they sell it something always happens most people don't hold a house in 30 years so I'm not too too worried about that just so you guys know too when when we underwrite for you we can always produce an amortization table for you uh and give that to you right off the bat so if you're working with the Nathan and Dave that gives you kind of that opportunity to start looking at that thing ahead of time and and get a read on what it's going to look like yeah awesome yeah perfect um question about uh the formula hit the form it's a brand new form we have um we put it out yesterday uh at the caveat um I did have this private message sent to me no Nathan and I are two different companies uh we're just good friends so we would make two different offers for you FYI yeah we're Cooperative but we're also competitive right so um so another thing we mentioned here is that you make sure to give us the pi p i not the Piti we need tax Insurance you can make it a different row but just a p and I is what we need at interest rate that's a definite thing we need it allows us to figure out if the payments make sense it also tells us the loan if you present me a loan that's a three percent coupon rate either a I'm not going to bid on it or B if you need me to bid on it my disc my price would be dramatically discount compared to the balance alone because for me to get a three percent coupon up to say at 8 9 10 12 14 whatever I'm shooting for I'm going to give you a significantly lower payment and they don't care but understand the fact that for me to buy a 40 on the Forty thousand dollar note and a two percent it must be a much higher upv much higher yeah so so general advice write it at a high interest rate without going over usually loss and usury laws are specific to every state so check that out for whatever state you're in but as high as you can is great and that helps us that helps you get the most money when you're selling it to us let's put it that way what about what about um taxes and insurance being escrow does that affect the value at all no no so if it's not so if it's not escrowed and you rely on the on the borrower to make that payment at the end of the year every year your yes it doesn't affect your risk at all okay it doesn't it should but it doesn't technically um if the borrower doesn't pay it I have to pay it anyway Anthony default I'm going to pay anyway right okay I can ask them to pay it in escrow like I always talk to my servicer and get it that screwed if they want to um I could do a mod but no it won't affect my pregnancy now one one quick point also when you're talking about trying to get your borrowers qualified we're talking about debt to income ratio and state specific residual income just bear in mind that while you can write a term of almost any number of months you want um it's all usually in your and the buyer's best interest to draw longer amortization period because uh as David or one of them mentioned anyway most of these uh transactions won't last throughout the term of the amortization anyway but what it does for their p and I is dramatic in terms of meeting debt to income ratio so I have a lot of folks send me term sheets and they'll send me a term sheet with uh maybe let's say a 180 month term and then when we calculate debt income ratio these people are over uh DTI and simply by getting a hold of the investor and saying if you'll bump that to 240 or 360 we can save this deal for you so don't don't get wrapped around the axle with the idea that uh you know I need the pni to amortize in 180 months or bus uh because a lot of times that will bust but uh I don't think and these guys can correct me if I'm wrong but from their standpoint uh 360 month term isn't going to hurt your uh value at all but it's gonna bring in a lot broader category of borrowers who can meet that requirement absolutely right yeah 30 years pretty typical yeah absolutely we just price everything according to an annual return so yes you you're going to get different prices 20 years left but it's just a different risk level in return themselves next one we need to know is your type of property please let us know if it's land if it's a mobile home the condo what we don't buy is I don't buy land notes um Nathan do you buy land notes I don't no okay I don't buy things in Mobile Homes typically um I know a couple of the owner client people have been mentioning it um they're just there's a little bit different type of note um that I'm not familiar with as much as typical real estate and Commercial so that's a little bit different for me um same I don't I don't love mobile homes I I'd look at it but it would have to be special yeah so obviously yeah quick question when you say mobile homes mobile homes with land or in on in the park exactly that's the problem right so yeah mobile homes could be land included it can be a mobile home with a rented land it becomes a little bit fishy for us um which we don't get to uh one question we added what kind of note documents need from us um where to assume you're the originator so we won't get into the other note craziness um if you're buying and selling a note to us we'll need more documents um but typically we just need the mortgage the note and for those who dot where make sure you get a title policy total policy ensure the fact that there's no liens into your title um if you don't go get one uh that makes it more attractive to us make sure there's no additional liens require to sell the property um and it doesn't cost a lot it's yeah well worth it all right so I have an interesting question so I bought a house uh subject too that was owner financed um and I ended up having to refinance it because the daughter came in long story short I ended up having to refinance it with a bank I almost wonder if I should have just bought that note from her but if I bought that note from her how would that affect me selling it later not at all you can resell it yeah I mean you could broker it out if you wanted to yeah you don't even have to own it yourself you could sell it to us interesting so and then could I could I still own that subject too because because that one got really interesting really fast I ended up I ended up offering her you know I think I we owed like 65 and I offered her 50 and she ended up taking it um which ended up being beneficial for us so we ended up doing a cash out but looking back on it I'm like well maybe we should have just bought the note from her and then sold it and then I don't know yeah you could do that but that but that but that makes more sense to me yeah we won't get into basically what you need then is an assignment of that just like you guys do assignments but we see an assignment of the mortgage and then uh and then you have the Elan which pass the note that would just transfer from one cell to the next and if we buy the note from you we'd be creating that same paperwork you're selling to us and you're basically you transfer the no transfer from your name to our name and the paper classes and then we recorded the county records so it's official that the lien transferred over from Utah very easy process so there's really not a whole lot involved with that so yeah so as we go down the line um we need the property city property address street address City the state and zip code it houses allows us to figure out how much the property's worth so we can figure out these kind of numbers maturity date we mentioned before the current unpaid principal balance which is the balance alone as we've moved along again if you're using apartments.com this will be much more difficult to figure out recommend moving to a servicer or buying a servicing software and figuring it out and apply payments as per se um yeah yeah if you've got something that you've only ever had with apartments.com and they're especially if they're just if they've been totally regular and same amount every month um send that along I'm I can I mean we can do the math on it it's it's a little bit trickier but we can do it yeah so if you've got something that oh shoot um screwed no not necessarily uh give us a shot yeah let us know balance next due date and we explained before the next due date is next date in part of the amortization schedule not the last payment received if based on the Amazon schedule most time if it's performing the next due dates next month last payment received that is just telling us when you get a receipted payment it could have been yesterday it could be today it's ideas and last two is a balloon if there's a balloon we just need to know how much the balloon is and the date of the balloon it helps us figure out the numbers for us and things like that uh the last one is modification more likely you guys never touched modifications um but if the loan is modified we need to know the date of it and what that new terms are interest rate and balance all that good stuff if you didn't change interest rate that's fine but all that good stuff are there go for it um again you you and I Dave have talked yes uh you know extensively about equity and you're not as concerned with Equity as I was I I thought that equity and interest rate were like the biggest things that we needed to look at here um I had I had a note that had a ton of equity but that really didn't affect the price I'm still trying to wrap my head around I I understand that if if it goes to foreclosure you're only entitled to what the but but does it does the equity reach a certain point where it stops making as much uh it stops being as much uh affecting the the value of the note give us numbers give us an example if you can okay so I had a hundred and I had a hundred and fifty thousand dollar house that I had a note on it for 65 000.

um that note was worth 55 000. essentially so I had you know eighty thousand dollars in equity they the borrower has 80 000 in equity yeah there's the key right but if but in in a situation where the borrower only had like twenty thousand dollars in equity that wouldn't affect the the purchase price how much you would pay for that note I would say this LTV loan value affects if I'm gonna buy it or not if you're looking at the fact that my Luna value is 90 I'm gonna probably pass on it because the risk of what's going on the market it doesn't affect me with my numbers because if you're saying 85 000 in equity I have to foreclose on it which is stupid for the borrower to have to get foreclosed on a property of equity when you do that I go to the auction I can only collect up to that battle so even if they have 20 I still can't get the other 20 I can collect up to that legal balance I'm paid balance plus corporate advances I can only collect up the legal balance now if it's flipped upside down right it's probably worth 50 and then pay balance worth a hundred we're gonna be bidding based on that value of fifty thousand you're not going to get much because no equity I'm going to be bidding forty thousand thirty thousand and you say well there's a lot of don't pay balance here well I can't buy it because if I go to foreclosure I'm not gonna get that money back that property is not worth that much money the collateral and an investor is probably going to buy that but if there's and like you said you'd pass up on it if there was only twenty thousand dollars in equity did go right okay right yeah if you're looking at you know property worth 40 you know we're 60 and it's for 40 that's a different number than it's worth you know 130 and you have 110 nodes so so investors investors like to buy it 75 percent so as long as we've as long as we're sitting around that 75 percent mark started in 10 but there was none there was never exactly everything is underwater so for us to now play with LTD it's kind of a new thing for us because nothing has learned about you and that's only been true since probably 2018.

yes this is that's probably the first time that I saw any equity in any loan that I looked at I'm like oh that's shoot what do I do with that and we had to actually kind of invent and figure out what we're going to do when they did have Equity so the negative does not scare us at all no but just understand we're pricing it on the lower of the two either if it's underwater we're going to base our bid on property value if there's a lot of equity we're going to base our bid on the unpaid balance so so on so on like Melissa's uh example where she has a hundred thousand dollar house the borrower borrower borrowed 140 000 you would probably pay only 60 or 70 000 for that note if the house is worth a hundred right we'd base it off the hundred thousand dollars okay yeah yeah absolutely okay yeah there's more numbers but yes that's of course yeah I I'm just trying to be as round as possible yeah okay okay um again we I put in the in the chat uh what the link is for the form that you can fill out if you have assets you're looking to sell you have stuff feel free to use that to fill it out send it back to us um we did uh cover most of the stuff in that list if we have to change anything or update anything we will let you guys know um but we we think this was helpful if you feel this was helpful and you would like us to do a webinar on how to create a successful note um what would make it more valuable um let us know we'll work on something for January um to make sure you guys can included in that if you're looking to learn about note buying and understanding our world reach out to we have you know webinars and videos and we also have a intense Advanced course we're starting back up on January 3rd um it's a huge course about how to apply notes uh numbers of figuring out things what's important all the systems um all that good stuff Dave can I ask another quick question and this is something that I kind of had saved up I wanted and I think you just answered it but I was wondering about how the Market's going to affect like the values of of our notes is it going to affect them I I would that's that's kind of been my biggest question lately is is how how that and I guess it it's just affecting the values of the houses at this point and then you buy based on the values of the houses yeah so that's why the LTV comes into play a little bit here because if we're 75 or 60 or 65 whatever the number we've figuring on our head if it just down we know the fact we have some buffer room um but yeah that's when it plays in part but the reason we say you can't ask the question is that's our question for you guys and then you guys are new to our webinars and all stuff and those who are are still on our Facebook live um we want to ask you guys a question go ahead Nathan yeah where do you guys see it's so we've got our our world right where we're predicting things coming in the future from the seller finance world how do you guys see it um for me I see it as an advantage because if banks are going to quit Lending we'll continue to lend you know and I'm sure I'm sure Melissa can can attest to this where you know where Banks aren't lending to a lot of people we can lend to them um name our price at that point Melissa what do you think where do you see houses the house market going right now in your world you see values dropping staying flat what are you seeing you well that depends right because I own houses all over North Carolina there's some where the values are going down um but there are some where the values are still the same as they were for example if like my house is at the beach right they're not they're not dropping in value my house is where I live like in Hickory North Carolina yeah they're dropping in value but their job in value the same at the same rate they do every time this year gotcha so I don't really feel like we're gonna know what's going on with this Market until like March of next year where we have a full year to look and see what's happened from last year to this year because right now the values are the same as they would be three years ago in December you know because they always drop about 20 from late September to February right then come springtime when everybody starts looking for houses and sun is shining and weather is warm then the values start going back up again so yeah all of that being said yeah interesting interesting we'd like to hear from Outsiders what they see the market of real estate going in the crystal ball six months a year none of us really know but we like to play that world of that crystal ball idea but what we really appreciate you guys having your your strength of knowing origination in this world of creating dollars magically in thin air um we worked long to bridge the gap between you guys originating and US buying and making that marriage happen smoothly so you guys can go ahead and buy more sell more buy more create more we can talk about Parcels we can you can sell par payments but you can also sell a whole loan and it's more attractive for us so well right I need some money and I have a whole list of notes that you guys can see it's easy like that right you literally can sit there and sell us the entire note and get money out or not that it's always the most attractive but you literally can sell us a part of the payment string next five years six years ten years and keep the back end that's also available David let me let me ask you guys a question um and then uh sort of get a gauge on from your perspective how the the correlation to the uh Fannie Freddie rates and what note Originators can uh you know make a rate at how that's how that's going to affect things so for example when the apors were two point seven eight uh we were creating notes consistently at eight nine so you know we were a little more than a six point spread over and it was very easy to do and borrowers still could meet DTI and residual income at eight percent eight and a half percent now that the apor's uh in the conventional Market are in the sevens uh or approaching sevens to get that same kind of spread now you'd be looking at uh HCM loans with rates of around 15 which is next to impossible to get we're getting them in trailers but we're not really getting them in stick-built homes and the percentage of seller financed borrowers that can meet debt to income ratio uh and residual income at a 15 APR uh is much lower so if that Trend continues with Fannie and Freddie keeping conventional rates that high how do you guys see that affecting us all uh in note creation and then on your end on Note buying so for for me um we have a certain return we have to get right and that return is now increasing based the fact that money is a lot more expensive so for me my desired return increases it used to be here now I'm up here so my price is going to change um that's my quick and easy answer for it Nathan yeah it'll be interesting to see what happens here interest rates um inflation all kinds of things going on in the world um as it makes it more difficult for for people to get loans uh people like the seller finance crew they feel a major role we're at the same time we're also filling a secondary role we're more than happy to buy the notes that are coming from the seller finance at the same time we're also more than happy to buy the non-performers so if and when people start defaulting on their loans uh those are also very attractive to us that's that's yeah both Dave and I that's our roots and that's our major major thing uh so I don't know what kind of pressure is going to be put onto people uh in general and and where does it all end and where when does it begin good question I don't know but it's it's looking interesting um we did a question on Facebook and I'm presuming you guys are okay with this if you're not let me know um some people want to have your contact information I will provide emails only um are you guys Melissa adjusting you guys okay with it I know so how is okay with it um for those who are looking to learn uh me reach out to you for some education all that good stuff um if you're okay with it I'll share your email addresses uh to those who just complete the form I'll do a quick reply on form responses and you'll get their information awesome design in there too because I know Dave you've got yours on there but I don't think mine is actually on your side yeah we we forgot that part of it right we checked it last night make sure the form response was accurate we totally forgot that Nathan on there um it's in there but I'll I'll fix the other form as well I'll make sure and Nathan gets the responses the emails for the form as well so he'll get the email responses and you can reply uh to any questions you've got um Justin Melissa so how Max thank you very much for joining us we're going to cut off the live feed in a second because hang on for a few minutes max I appreciate it your information will be awesome to be out there guys if you're looking for a servicer to get your things right reach out the home key uh if you're looking for someone to underrate your law your loans make sure you reach out to Max call the underwriter and um he'll make sure everything happens on the up and up if you watch another one of these we'll do kind of a follow-up one in January um more about I think we're going to do more on the origination side yeah yeah how to make it more attractive how to make it legal making sure that we have all the stuff needed so how to write that so that you can sell it to us at this at the selling table if you want cool awesome great stuff guys thank you hey thanks all right calculate that as an adding return versus a one-time lump sum Roi because that will dramatically increase your returns no matter what you do and you can do is if you could do this four times a year season it for two months sell it to using it sell it over and over again that 10 grand on 40 multiplies and and yes we're more than happy to buy notes from you all through the air any day [Music] thank you hey everyone Jay putz here from jkp Holdings alongside me as always Mr Nathan Turner how are you very good very good Trend stay warm oh my God apologize so I wanted to make sure that we connect for a few minutes let us people who don't know who we are kind of get to figure out what's going on here um I'm Dave footson run jkp Holdings for about 10 years plus I've been buying notes uh mortgage real estate back notes for that many years and um I've been primarily buying Bank originated but we're working into this idea of seller finance notes we bought a few of them but we'll learn a little bit more about them and that's where I'm at Nathan care Share about yourself so I'm Nathan Turner uh I started in notes in about 2008 and I was creating notes like a lot of you guys do and uh it was in Ohio so in Ohio it's a land contract we were making all these land contracts and and one of my biggest stumbling blocks is like okay how do we cash out of these how do we how do I make money on what I've now created uh and took some classes and started meeting some people and learned all about notes and this whole secondary Market that I had no idea existed before uh and now it's kind of come full circle it feels like we're where now Dave and I are here we want to help those who are doing what I used to do about creating notes there is an outlet and there is a way where you can cash out of these you can go out and make some more money and we are more than happy to buy your notes uh so we're going to get into all that stuff today but that's just kind of a real brief introduction absolutely we have a lot of people here don't know who we are a lot of people are really interested in this topic and what we found is a huge bridge between the world of note buyers and those are origin notes the seller plans or owner finance origination world and us it's almost like two different Bubbles and what you're gonna find out today is that our connection between what you guys do and what we do can be seamless where it just flies which is awesome so I want to make sure you guys tune in ask questions I got a few things going on here to kind of track things we're on LinkedIn on Facebook uh hopefully everyone can see us in here and all that good stuff if you have problems make a comment in the box and go and go from there but we want to start up with you guys um we do have some guests which will bring on the second but we wanted to just kind of introduce what we do and some of the first things we want to talk about today yeah so we like it's it's it's a big world and it's big leap I like I say I started out with creating notes uh which was great and I love creating notes I still do it today a lot of seller finance notes mainly what I buy and Dave as well is as mortgage notes so people will go and get a mortgage with a bank with whoever Wells Fargo Chase Bank America You Name It Whatever Bank um the bank will then sell that note and there's all kinds of reasons why they sell that but but the short story is we will buy those notes uh we are not Banks we act as Banks do in some cases uh but we aren't we don't actually own the property we just own the mortgage attached to the property are the node attached to the property and so we collect payments in that way so that that's a very very brief introduction of what we do what else you got Dave yeah so one of the things we wanted to First share with you guys is that we get the concept of mortgage and new and what you guys are doing we get right but what we want to share with you guys is why why would you sell a note you know and what do you need to provide to us and what you don't need to provide us to make the numbers work yeah right so one of the things we want to share with you guys that you guys make huge profit when you create that note huge profit you create a note that you're into a deal for 40 Grand you create a hundred thousand dollar note oh my gosh is awesome at a thin air you created money and we have some great people who are going to be joining us today who are doing just that as well as those who are doing it on a larger scale they'll be in the Chatham short so when you create that note what you don't realize that you can cash out everything you're into it for plus more which is awesome that that's what we do we we go around we buy look the loans like I said I do some origination still uh and I enjoy doing that but my main business is buying already originated notes so somebody else created that note I'm just buying it as an income stream uh that's my core business so I hopefully you can see already how our two businesses really come together so we have some Chichi here to kind of go down our checklist and make sure we include everything for you guys um so when you create that note and you create this money out of thin air do you know you can sell that note to us the collateral and just create another new amazingly enough I'm finding a lot of you guys don't know that we exist or where to turn to sell that note and today we're talking about what you can do to turn to sell the note to any of us and what details you need you can take this money and go buy another property with it you can do anything you want with it the one caveat is some of you guys have some assets that are non-performing oddly enough we buy them too oh I'm crazy but we buy them too right so yeah both Dave and I started out really you know after the after the whole recession happens so we we both started out buying non-performing notes as our main business where people are not making payments living in the house that's what we started buying in 2010 uh and that's been a major part of our business for the last 10 12 years so if you've got one of those problem notes or let's say they're just not paying regular and they're just kind of a thorning your side we buy those too we call those scratch and dents so we'll buy the scratch and dents we bought a non-performers we buy the performers we buy pretty much anything so hit us up yeah so when you're looking at buying this kind of stuff there are two different worlds you play in we have the seasoned note and buying at the table at a closing table you can sell either one of them understand the fact that if it has the seasoning which just refers to a time period of proven payments we can buy it for actually a bit more money right than if it's brand new the wrist level is higher you can also sell part all the loan payments in the first five years or you can click the whole thing and buy sell the whole note off and do what you want with it one of the caveats we've seen recently and we actually have some two people who are Professionals in their space as well is creating what they call 80 20 loan we have 80 on first 20 in the second and you can sell the first off and keep the second for payments and sell the eighty percent of whatever loan you're creating for huge profits for you guys and then you've still got that 20 second that you can collect some money off that as well uh so you still have some cash flow but then you've got that big chunk that you can go back out and do whatever you're gonna do or whatever personal thing you've got maybe you're sending somebody off to college or maybe you're you know renovating your own kitchen or you know whatever it is you've got that money needs for uh we're here to help fill that Gap yeah absolutely so um I want to I'm just going to bring up uh some information here what we do have today um is a few special guests who are not gonna be on video and then two guests who actually be on video uh if you're familiar with no creation somebody twos or any of that kind of world you've probably used an underwriter well we have Max from quality underwriter on he'll be all video uh but he's gonna be discussing things or answering questions we need to to go to them we also have somehow who runs home key servicing uh so how is a service provider who will act like a landlord for rental properties but for note space we're going to get into why a server series P for us as well as for you guys as we go along away from it and Sohail is that's one Service Company there's a bunch out there uh we happen to have soil here he can answer all kinds of questions he'd be a great resource for you uh if you move your services over to him fantastic that's that's good for him uh good for us and we'll talk about why that's good for us as well we'll get into that awesome so let me uh switch over here uh we should be good we have some special guests on right now um I mean just make sure we got going on we have uh two guest letters right now that we are really excited about right um we have Justin and Melissa hopefully you guys are there and we all have her I'm muted so um what we want to talk about today with you guys is this idea of you guys create notes and create dollars out of thin air which I think is awesome you're still muted can you Melissa can you share a little bit about how you got started in this idea of creating notes Okay so please forgive me because some of the things that you are going to see are probably going to make you cringe like the fact that I use apartments.com that's okay definitely open to doing more better as one of my real estate Associates say um I've only been in this market for about two and a half years so it's been a learning game right it's definitely been a learning curve um my first deal was kind of just dropped in my lap and I feel like God says okay you're done doing wholesaling you're smarter than this this is what I want you to do you know and it just really after learning this strategy I was able to get out of the Rat Race and create millions of dollars in like 18 months so it was life-changing for me very fast um I do specialize mostly on getting subject twos and then doing an owner finance with those subject twos um and I get 20 down and I create a great monthly spread for the most part um and yeah everybody pays through apartments.com and it's a good life however I do often find myself uh cash poor right so I'm I'm like you know now I've gotten a hotel that I'm looking at and I've created all of these millions in in notes and I wouldn't mind cashing some of them out so I could get some cash to reinvest into this hotel that I'm looking at so hopefully learning all this by the end of this uh session I'll be able to do that yeah awesome we may have to spread this out into a couple of webinars because there's there's a lot of information but you're in the right place this is this is great and we want to remind you guys if you guys watch this video in your middle of it this will be on YouTube we'll be on the Facebook page uh be on our website uh but yeah YouTube channel all the good stuff is there uh just look up jkp Holdings on else uh on YouTube you'll find this video so Justin can you share a little bit about your background how did you get involved with notes uh very very similar very similar way I uh I started off wholesaling and I just man I just really didn't like it I was cold calling and you know it was like offering these 50 deals or 50 for cash and I just I just didn't like it and then I I kind of discovered the more creative route that you could take and just making win-wins for owners and you know for buyers and sellers making win-win for us you know I just try to make as many um it seemed like I could help more people that way um and and help them faster There Was You know I didn't have to raise as much Capital you know and a lot of times when I did raise the capital I was able to you know very very similar to um very similar to what Melissa was saying you know buying subject two and then if I had to come out of pocket any cash I just turn around and get that cash back from an owner finance buyer um a lot of times but sometimes you know we've flipped a couple of houses that we just you know that we couldn't find buyers for and we just ended up owner financing them and then you know we were like well we can sell it we've heard that you can sell notes so you know eventually you know and uh I was you know earlier this week I actually sold my first note so I've been through the process um but as soon as I opened up that can of worms it was like holy cow there's so much more to this than than I even knew yeah and you know what I went through the exact same thing I started creating these notes in 2008 in in kind of all over Midwest Ohio Indiana Michigan and and it was like okay there's got to be a way to cash out of these and I had heard rumors you know I'd heard these stories about people that buy notes and I went to a um a training seminar in 2009 and it just blew my mind I could just all this huge secondary Market that I didn't know existed I went to uh to a conference later that year uh down in Louisiana and and everybody's you know talking about this thing that I just barely learned about and yeah it's it's real and it's a it's a very vibrant Market yeah one of my first deals I actually traded equity in in two houses for an owner finance house on the back end and so I had all this Equity sitting there that I ended up selling and making all my money in the front end because I sold the other two houses but then I still had this other one sitting there and I was like well that's all my money that's tied up still sitting there yeah um and that ended up being the one that I finally sold and I was like oh well that wasn't as hard as I thought it was going to be yeah um but there was there was just some intricacies that I had to had to learn and kind of get punched in the mouth and keep on rolling with okay awesome so we want to get into a little bit more of the details of this stuff um to make sure those are watching you guys will what we're talking about here so what people get interchange words a lot of times right so there's this thing called land contract contract for deed we also have a lease option we also have you know a idea trust all these different words that mean different things but generally means the same thing right if I say listen is it a mortgage or land contract you may say why does it matter well in legal sides if a woman goes not performing that does play a role certain states don't allow land contracts you talk to people in Texas they say what are you talking about right um I have no idea what a land contract yeah you talked in Ohio Indiana it's all over the place there Michigan right if you go to Louisiana it's called a bond for deed if you go uh one of the Carolinas I think it calls in an agreement for deed they're all basically the same thing for our purposes we we kind of lump them together and call it contract for deed or cfd yep and we even know the difference we would ask you guys to let us know what it is if it's a mortgage or not um just make sure you tell us what it is because we have to price it differently and certain states are actually discouraging land contracts with the attorney with the judges so in certain situations where the land contract can't be foreclosed on or can't be evicted you actually have to a foreclosure depending on the numbers and that doesn't necessarily mean it's a dead deal it just means we just need to know what it is up front so we know what we're going to get into here if we need to convert that over to a mortgage at some point or or something else but we have options we have things we can do uh we just need to know what it is getting started we lost them with it for a couple seconds Melissa whoops hopefully she can jump back on we'll switch over uh so when you guys are when you guys were talking about that I didn't even realize that we could sell a leaf option the same way we would sell a a regular mortgage note um because I do have lease options but you know we we like to take what we we like to see our lease options as the dating as as dating our tenants before we move them into owner finance yeah um and and it actually works out really well for us it's you know we get to capture you know all the all the tax benefits of being a landlord originally and then we switch over to an owner finance deal um but I didn't you know my concern was always well dang you know if it's a lease option I can't cash out of it because I can't sell it because I don't have you know they have the option yeah yeah so short answers yeah we'll buy we'll buy lease options with a lease option it's a little bit more particular uh depending on the terms of the contract a lot of they're all different you know different lease options are written differently so we just need to read through the agreement and understand what's in there but the short answer yeah we'll buy lease options as well we're probably going to do the same thing and flip it over to uh to either a land contract contract for deed whatever you want to call it or to a deed of trust or a mortgage note uh we'll probably convert it to something else sometime in the future but yep short answer yeah we'll buy that interesting okay we had a question here too uh Kevin yeah Kevin asked uh he does Private living for 12 months or less um is there any advantage of selling short-term notes in our marketable if a note is 12 months five months 30 years 20 years it's math equation right so um anything you want to ask feel free to put in the chat as well but yeah we can price it you may get a significant discount you may not we run everything through our model we figure these kind of things out right um it's remarkable absolutely the world of notes is really buying it as the numbers right we base our deals on numbers where we're going to get into you guys based on dollars um and we're gonna we thought that Justin earlier before we went on and that idea of facing a dollar is may make sense in some worlds but we're going to show you why it makes sense to do it based on returns better so um the other question we have from it was King divert a note of a land contract into a deitrust absolutely it's done very regularly um and we have Max on audio but he can tell you about that in a short while but if you need to um you can definitely convert that over call it's called call the underwriter um go to the website and you can convert any land contract over to a note so and and like even Justin you're saying you need to go to a lease option and then convert them over um you don't need to I mean that's fine and if you want to date them for a little while before you make it permanent I get that uh but you don't have to you could just you could just start off with a do you trust a mortgage whatever whatever it is in that state is it is it is it as valuable that way um is the note as valuable being a lease option over being uh owner finance does it does that affect the value of that of that deal um so probably an order of value the lease option is probably going to be on the bottom of that um again not to say that it's not valuable but I'm probably gonna pay more for a Data Trust than I am for a lease options okay feedback is that me yeah I'm not sure who that was but um Melissa's back welcome back hey Melissa over here it's pretty much the Story of My Life um quick question about the lace option though okay so let's say that we we did a lease option with someone and we met you guys and you're like okay we'll pay more for days of trust and not so much for lease options could we go back to that lease option um buyer and read you know redo the deal like start a DOT yep absolutely and then sell it to you okay absolutely definitely yeah we would recommend so yeah so so so kind of kind of you know piggybacking off what she's saying a lot of times what we do is when we advertise for uh the owner financed buyers we have uh our lease option is say five percent five percent down and then our uh owner finance would be 10 to 15 down um would based kind of like what she's saying if I took the five percent down and then in a year say okay you still got on-time payments let's go ahead and convert it without you coming with the rest of the down payment um would that be something that would and then and then immediately turn around and you know call you guys and say hey I've got this owner finance uh situation or or deal for sale I guess it'd be a note at that point would that affect anything so a couple of things I'll Dave I'll give you your in a sec but so uh 10 down is better than five percent down for sure of course you've got now 12 years 12 months of pay history though as well something uh so even even though even though that's technically rental payments uh yeah no they're making regular seasoning right right or even rental payments for seasoning yeah and you may say listen I have two payments but then you say listen I have 12 month rental payments I can prove that's more attractive than some brand new person right think about if you're buying a rental property if you're gonna buy a performing rental right what do you do with the situation where the you know if property's already rented out for a year you feel good about that rental yeah or if it's brand new rental you know buy it perform a rental in the radio it's not so trackable so a lot of mine kind of offsets that a bit the five percent down oh okay that was that was gonna be my next question because a lot of times we wait for them to come up with the rest of the down payment to convert them over but it sounds like we'd be just fine just moving them over into an owner owner finance as it is yeah and and so maybe that's the next thing we should get into David we've had a another question about that about what kind of terms we're looking for that kind of thing maybe that's the next step here yep go narrow checklist here so go ahead and start it off quick up yeah oh you want me to Sir hey go ahead sorry okay so we're looking at a few different things when we're looking at a note um down payment is is the first thing so the bigger the down payment the better uh it shows that that person's got skin in the game and you guys all know this this is this is what you do uh but that bigger than down payment the more skin in the game um the safer it is for somebody to take that on and have confidence that they're going to continue to make payments long term so that's that's number one down payment bigger the better uh I would say as a general rule I would go ten percent Dave you looking at anything different or is that about right it's weird right with the seller France world where Bank of Virginia notes this never was a problem was never an issue so it then now the world is I'm more aware about LTV now because of what's going on out there than actually down payment per se so on a five thousand dollar I would think more percentage-wise so if that note is five grand but it's a fifty dollar note versus a heart attack to me that percentage is big but I can figure out the percentage why so down payment will allow me to figure out the percentage that was down made for me that's more attractive than a dollar amount yeah a good point before we get to our list I wanted to make sure that you guys have some more general knowledge before we dive into it and we're going to have a form I'll put it in the chat box here for you guys that will um allow you to get the full list of items that we want um any nope I wouldn't want actually so one thing you have to figure out is are you a borrower or a lender and what I mean by that is a lot of you guys out there are 72 buyers where you bought a property subject to and you're technically a borrower to the other one but then you're a lender to the new owner and there's some Dodd-Frank rules behind what you're doing to make sure it stayed legal we're not going to get too deep into that right now but after the question about that we can kind of hit on things but we got to make sure that if your borrower and the lender we need to make sure we're buying that second lien that's created for that cfd whatever you're creating is able to pay off the first and the contract shows the fact that we can do that in addition to that making sure you let the borrower know that the first lien is still there you need to let the borrower know that the subject you lean is there or because they're subject to situations if you have questions we have Max on that explain a little bit more about that but you need to make sure your borrowers know that the first lien on there um similar things are um the amortization upb we're going to get into what that means but understand there's a upb unpaid principle balance as the note goes down and that should stay the amortization wise and that relates to a payment right when you make a payment that's 742 and 36 Cents if they pay 740 that wasn't a full payment it sounds foolish but it like it affects the way the balloon on the end of the payment is even that change because if you take 10 cents and multiply it by 360 payments there's a balloon at the end of it and that will change everything out and if it gets contested in foreclosure we buy and start defaulting that all come back into play so I I have a quick question I can go back to the subject two question uh the subject to discussion and correct me if I'm wrong but if I have an underlying mortgage and then I have a rap note on it and you buy that second lean note it would wipe out the first and make you the first lien holder correct yes yeah okay and it has to happen that way right yeah I have to yeah I guess it does well I mean it doesn't have to we prefer to put that way yeah right because I mean again another thing is if you're buying a first lien or buying a second lien the pricing changes just like seasoning so the first lien is not as risky is the second which means I'm gonna buy that second at a much deeper discount okay so let's let's say I have an underlying lien that's staying near the same as the if if I because I'll I'll buy I'll buy subject to um houses that have no equity in them and then I'll wrap them you know obviously I can't I can't sell just that second lean right you can actually I love it okay I guess I'm confused if I sell that second lien listen let's use real numbers here you bought a 72 profit for 40 Grand you're into it you rewrote a note on that property say a hundred thousand dollars so you have total debt of 140 000.

if I sit there and give you say 80 grand for it you can take 40 that grand pay off the first which I I would I would want and then you get 40 Grand in your pocket and you walk away and then I'm in first position now right and if I don't and if I don't pay off that first lien wouldn't that person get paid off at closing so there's no closing here right we're not doing a title closing here at all this is not a property sell this is a note sale just notice okay I love it I love this and is there is there any is there any legality there that I should be you know concerned with you know with in a situation like that because if that first note gets called I mean I'm I'm technically I'm I'm out of the Woodworks there what why do why why would I pay off that lead that we would pay off the first inside of an escrow account of account in that contract with you guys Hey listen how do you pay off balance that first make sure it's included in our contract would say this would happen and we'd probably run it through like an escrow or attorney to ensure that money gets DVD correctly okay so the quasi-closing I kind of set up that's how I would probably do an inspiration I haven't done it yet but that's my thought process okay so so why would why would somebody only sell the second lien you can't why would somebody why would somebody even buy this like just a secondly so second lien holders are a little bit of a different it's a it's a different spin on the same thing that we're talking about they have all kinds of reasons Dave go ahead I don't do seconds let's say you have a lot of loans were created with piggyback right 80 20 loans right you have 100 property you we can use a million dollar Problem whatever the first one's a like a 60 the other one's such one right 20 grand total 80 grand so now you have up to 80 grand 100 property you have LTV at 80 which is not the best but it's fair now I can go and buy that second lien for 20 grand or I can buy for 10 grand save right and I can start receiving payments on that second I'm not as secure as the first right I can get I won't get into all that stuff but I can buy it but the problem is if that property drops in value my second lien gets squeezed with Equity but that's it that's that'd be in a in a second lean smaller and a smaller second lean against the house versus a wrap around mortgage right so in a wraparound situation we need to pay off personally yes because you say you have a you know hundred thousand dollar seconds right and a forty forty thousand dollar first technically right and the property is only worth say 90 you're up to 140.

yeah we need you to pay off that first for me to get in position right okay that is that's I guess that's where I got lost because I was like wait a minute in a rap situation you got to pay off the first yeah we were getting a lot of questions in the chat I I appreciate you guys uh so again we're in the numbers if I sit there and bought if you if you bought a 727 and you bought for 40 Grand whateve....