How To Create The Perfect Note Using Seller Financing with Nick Legamaro

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
All right, everybody, Hey, we are back with our next
amazing note, rock star note investing rock star.

Speaker 2 (00:08):
This guy, it's not it's not often you come.

Speaker 1 (00:11):
Across somebody who is created and sold over, you know,
one hundred million dollars in owner finance notes.

Speaker 3 (00:21):
And so we're there yet, but we're gonna be there
pretty sure.

Speaker 2 (00:23):
You're pretty close.

Speaker 3 (00:24):
I think you're pretty you're on your.

Speaker 1 (00:27):
Way exactly, and I will tell you this. You know,
we've got a true no pro.

Speaker 2 (00:32):
We had Nick the note guy.

Speaker 1 (00:33):
I'm Scott the note guy for years, Nick the nother
guy out here who's also a fellow ast night here,
uh camp, there we go.

Speaker 2 (00:42):
So we're glad to have Nick here. Nick. How's your
how's your weekend going so far?

Speaker 3 (00:45):
For you? Buddy good Man, it's going good. I mean,
I'm uh, it's a Sunday, but hey, I work all
the time. It's not really work when you're doing what
you enjoy to do.

Speaker 2 (00:54):
That's for sure, exactly.

Speaker 4 (00:55):
And the fact that we could do it from home
where there where there's having to jump on a plane,
get up, you know, up late the night before too
much adult beverages, and and then go downstairs exactly.

Speaker 2 (01:06):
A good hour and a half.

Speaker 1 (01:07):
Here for you, for you, but we're glad to have
you speaking here in Notekimp for the first time and
hopefully yeah as well.

Speaker 3 (01:14):
Thanks for having me on. I'm excited to share some
of the some of my knowledge and experience with the
viewers and the listeners wherever they might be. And you know,
I'm not a professional educator. I'm not a professional speaker.
I uh, but I do. I talk about what I do.
I mean, I think that's what's really important. I actually
do what I'm going to talk about today, and I've

(01:34):
been doing it for a long time. And it may
not be the right strategy for some are all, but
it's worked well for me and I and I know
it's something that isn't very well known of because a
lot of it's we sort of brought back to old
school in a lot of ways. So it's hopefully it's
a value to people that are that are going to

(01:55):
stick around and listen to us.

Speaker 1 (01:57):
Yeah, we've got We've got investors from all across the country,
even got some national flair Canada, Australia, England, Israel join here.

Speaker 2 (02:04):
So yeah, and then of.

Speaker 1 (02:05):
Course the repleaseer go out to everybody so we've got
the viewers online and viewers here domestic. So just thank
you so much for coming on.

Speaker 3 (02:11):
Speaking, thanks for having me.

Speaker 2 (02:12):
Yeah, no problem. So I'll jump off here and I'll
be lurking.

Speaker 3 (02:15):
With coming lurking. Please please chime in anytime. Don't fall
don't fall asleep on me. Man, I can't. All right,
let me. I gotta fold this up and we'll get going.
Here me one second, you gotta go. It's a little
hard doing two things at once. Here, here we go.
And okay, let's share with screen and we should be

(02:37):
ready to roll. Can you see my screen?

Speaker 2 (02:39):
Okay, yes, sir, perfect, all right, let's do this.

Speaker 3 (02:42):
So, uh, what I want to talk about today is
what I call the perfect note blueprint. I mean, at
the end of the day, we most people that are
in the note business, Uh they learn how to buy notes,
how they learn how to uh perform due diligence, but
they don't really nest really understand how to create that

(03:02):
note from the beginning. And I want to take the
you know, a good portion of my time today explaining
exactly what that means, where I think the opportunities are,
and more importantly, how I do it, How we do
it ourselves. So let's go to the next screen here.
So as Scott said, akay, Nick, no guy. I get
to be no guy because I'm older than Scott. If

(03:25):
I pass away, suddenly Scott can take that. So then
we'll both be no guys because that's what we are.
So I've been actually in real estate since about two
thousand and one, did everything the wrong way. There wasn't
education like there is today. There wasn't what we're doing
today in twenty one. Twenty years ago. Data wasn't readily available.

(03:49):
Things just weren't like they are now. So we have
this unique opportunity to absorb content and make decisions based
on information that we're able to get at just basically
a touch of a button in search of a Google
you know whatever it might be YouTube. So I started
a company in twenty twelve called Rylex Capital, and the

(04:09):
intention of that company was to create an opportunity for
home ownership to hardworking families and individuals that have been
told no by the bank. Sort of just sort of
stumbled across how to do that. I'm not going to
really get into the backstory of it because I don't
have enough time. And we got some great guests coming
on after me, So I don't want to lose lose

(04:29):
sight of that. But I started a company, and I
started with I started myself, but shortly after I found it,
I brought in a partner by the name of John Montero. Now,
anybody that's in multi family space now may have come
across John Montero, because after we sold Rylex Capital, John
decided to go more into the multi family space. I

(04:50):
took a couple of years sabbatical away and then I
came back in and now we'll talk about doing so.
But we built this company to sell. We didn't know
if we were going to sell it. It was all
around creating mortgage notes in a seller finance capacity to
non traditional buyers that couldn't get bank financing. We built

(05:11):
this up and then we end up of all things,
selling it, all the capital, all the assets, and a
lot of the notes, and our proprietary technologies and everything
that we had our employees to all people or all
things a federally chartered bank. So it's sort of interesting
how they couldn't create they weren't in allowed to create
notes like we could create, but they can go out

(05:33):
and buy it, which is what they did. Then in
twenty nineteen, I created the USA Notepro, which is my
primary function in life today from a business perspective, and
that was really to buy, sell, create, and educate regarding
mortgage notes. But I emphasized create because there's just not
many people that I know of at least, and I'm

(05:54):
fairly well connected in the space that really understand how
to create the perfect note, know how to create notes,
because that's what they do right. Financial institutions, you know, Chase,
Bank of America, Wells Fargo, they have internal staff and
they're regulated on how to do it. But as you'll
see in the statistics as we go on, most people
do not, either because they don't know how, or they're

(06:16):
not required to because of how Dodd Frank is written.
And we'll talk about there in a second. Then in
twenty twenty, I created a sort of a spinoff company
called Wholesaler Helper, So if there's any wholesalers that are
on the call and are trying to figure out what
the hell they're going to do next because they haven't
been able to crack that code. When it shifts to

(06:36):
a really strong buyer's market in the real estate space,
this might be some valuable information for them as well.
And then in twenty twenty one, I created my partner,
my partner and myself, Eric Sage, creating the Created deal
Maker Academy, which is is it's the precursor to the
note creating process, which is really how to find the deal,

(06:59):
how to fund the deal, how to structure the deal,
how to find a buyer and then get into the
note creation. So and then where I am today is
between now and hopefully an end of twenty twenty three,
we'll have creative just in this eighteen one period, you know,
close to our from our projections, one hundred million dollars
in performing notes that are all done exactly how we're

(07:22):
going to talk about today. And there's going to be
an opportunity for those that are note buyers that participates,
maybe be in a fund use if you have a
retirement account. We can talk about that as we go along.
If you have any questions, you can surely reach out
as well. Like I said before, I've done about eight
hundred creative deals personally. That when I say personally, I
mean my name is on the closing documents. Okay, I

(07:45):
don't know that's that's just my deal flow itself, eleven
hundred transactions, probably way more in that, and who knows
how many countless other thousands of just from consulting and whatnot.
So you know, why should anybody listen me? I guess,
I mean, I don't do this very often unless it's
a situation like this. I don't. I'm not on the

(08:08):
I'm not on the circuit, you know, per se. But
you may have seen me on or heard me on
podcasts or from the front of a stage in events
on either the real estate or the note side. I've
written some publications. But anyway, you know, google me, listen
to me. You like when I say great? If you
don't like what I say, great, I don't really care.
This is really about me sharing with you on exactly

(08:30):
what I do, why I do it, and how I
do it. So who is this information for? And I
want to get in the nuts of it. If you're
a wholesaler, you probably should listen to what we're talking
about here. If you're a note investor, which I think
a lot of people are either aspire to be or
currently are, is something that's going to be of value there.
If you're a landlord, this is great opportunity because landlords
are it's in their DNA lot cash flow. A lot

(08:54):
of people don't know that you can obtain cash flow
by controlling versus owning real estate, which is exactly what
the banks do. But we don't really think about it
that way. And I always joke around with all my
friends that are landlords, and I always joke about it.
I go, the reason why you are landlords because you
haven't figured out how to be a lean lord yet, right,

(09:15):
you haven't figured out how to control without owning. And
you know, you can make the depreciation argument all you want,
but I sure like amortization probably more than depreciation in
single family. And this is what we're talking about today.
We're talking about single family home ownership. If I wanted
depreciation or I wanted to do something else, I do
some kind of commercial transaction, multifamily story something like that.

(09:38):
That's what that's what it's good for. But single family,
I'm a note guy. I don't do anything else but
notes in single family. If you're an IRA, if you're
a lender or an IRA investor and you're trying to
deploy capital or work with a lot of family offices,
or it's about asset preservation, something that probably look and
listen to if you're you know, that's one of the

(10:00):
focuses that you have, all right, fix and flippers. Oh
you know, you know that's getting tough if you're a
fix and flip guy, because now instead of fix and
flipping and selling to a retail buyer, you could probably
fix and flip and sell it to owner finance buyer
still staying the deal and hold the note for cash
flow instead of treating it as a transactional model. And
we work with a lot of those types of investors

(10:23):
as well. All Right, So the first thing I want
to ask is why you should ask yourself why you
should create a perfect note. And I just call it
a perfect note because it's it's the opposite of what
most notes are created. And we'll talk about that here
in a second. So that's one question we're going to
ask and answer. And another question we're going to talk
about is how big is the seller carry market? Okay, well,

(10:44):
I think let's just start with that. So the soler
carry market is about twenty seven billion dollars. Okay, that's
all mortgages that are written that don't have the name
of Wells Fargo, Chase, Bank of America Moon. Okay, it's
a substantial number. A lot of people don't even know
that this market exists. I would imagine a lot a
good portion of the people that are listening toy today

(11:06):
that have some experience and notes may have some understanding
of this. But over the last four years, we're talking
over one hundred billion dollars in seller created paper. Now,
what's interesting about this paper, and what people don't really
talk about, is the quality of the paper. Okay, the
quality of the seller financing paper. We talked about how
it's a twenty seven billion dollar you know, it was

(11:28):
twenty seven billion dollars in twenty twenty one. Number is
going to only go up moving forward because banks have
tightened up their requirements for underwriting rates have gone up.
There's not nearly the gap any longer between going getting
a traditional mortgage and providing seller financing to a buyer.
So that's a big factor about ninety percent of that paper.

(11:52):
And anybody that's can can probably attest to this that's
actually bought somebody else's notes before, can hump the flaws
and the errors, and there's emissions of documentation. It's not
it's not written illegally, it's just not written with best
business practices in mind how a bank would do it. Okay,

(12:13):
then we're going to talk about that as little. So
ninety percent is what I would call flawed paper. It's
called scratch and dint, which causes the discount that sellers
of notes have to take. That we are taught as
note buyers to look for to create the value proposition,
to get the yield up or whatever it is we're
looking for. But really most people would prefer a high quality,

(12:38):
brand new note that there's no scratches and dents on whatsoever.
So I'm going to talk about how we can create
that or how you can even buy it. Okay, So
why is the seller market? Why is the seller carry
market so big? And it's another question I always wanted
to know the answer to, because twenty seven billion dollars,
it's not a small number. It's a fairly large number

(12:58):
that not many people even know about. Well, there's two
reasons that I attribute to the seller carry market to
be so big. One sixty to seventy percent, depending on
where you get your news and your data from, borrowers
can't qualify for a truitional mortgage. They fail. They failed
to check all the boxes. What I call a pretty
buyer where they don't meet the DTI requirement, which is

(13:21):
that the income, the credit score is not right, they
haven't been in their job long enough, they don't have
the proper down payment. One of those factors will disqualify them.
And sixty to seventy percent of the buyer pool cannot
qualify it. No one ever talks about this, Okay, but
it's a huge, huge number. But now we're going to
see why this is important, and if you're a seller,

(13:42):
if you're a seller of property, why this is important
When you start struggling to get your asking price when
you sell, by being able to price seller financing is
a tremendous opportunity to get your price and get value
out of creating a note on behalf of a buyer
directly the other one. The thing is this in this
example or in this model, is that less than five

(14:05):
percent of all the properties that are available for sale
in any market are even available to purchase owner financing. Okay,
so out of one hundred, So let's look at the
economics of this, because this is really important. If yours
one hundred properties available in the market for sale, only
five five, or less than five percent of them are
available on terms. Well sixty percent of those buyers that

(14:28):
are looking need financing, it seems to me. And I
wasn't great in math, and I wasn't really good in school,
but I did understand the basic concepts concepts of economics
one to one supply and demand. If you have supply
and it's in high demand, you're controlling the hammer. And
if you have the inverse of that as well, so
you have the unique opportunity to control both sides of

(14:51):
this equation. You can provide seller financing to the sixty
percent seventy percent they can't go get a bank loan,
and you can provide properties for them to buy. We're
only five percent of the marketplace even allows it. So
that's what makes this market so valuable and even more
valuable moving forward. So this information comes from advanced data

(15:12):
which is Scott Arpin and Tracy Ruey at none Investment Tools.
Thanks to both of them for providing some of this
data and content. I just I just want to share
some visuals on this. I'm in the tech I'm in
the Texas market. Even if I was in anywhere else,
I would only do deals in Texas. Personally, it's just
the best place to do deals. I mean, no one's
leaving Texas going to California, not anytime soon. Okay, that

(15:36):
could change. But Texas is a great market. That's why
it's a large percentage of the seller carry market. NOE
buyers want to buy in Texas. People want to live
in Texas. Other states too, but it's a very very
popular market. When you and if you have a note
that you're looking to buy and or sell and it's
in a desirable area, you're going to either pay a
premium or you're going to get a premium price for it. Okay,

(15:58):
other states are good too, We do stuff in those
states as well.

Speaker 2 (16:02):
Just Texas's best. Don't mess with Texas, baby, Yeah, I know,
I know.

Speaker 3 (16:06):
I say that when they say, it's funny when you
say that, when they when I always think when they
say don't mess with Texas, I really I really think
they mean don't mess with Texas banks or Texas members
because you do not win, You do not beat the
Texas lenders and banks in the state of Texas.

Speaker 2 (16:24):
Oh that's the truth.

Speaker 3 (16:25):
That is a true statement. You're gonna get your You're
gonna get what you get coming back. So I only
want to show this graph visually because if it starts
in two thousand and nine and goes to twenty twenty one,
but as you can see starting and it was a
gradual growth up and reason being, in my opinion, is
because banks really got really tight on They got their
hands slapped in two thousand and eight and their underlying

(16:47):
guidelines got really tight so people couldn't go get a
traditional mortgage, and that started this trend going up. As
we got in the twenty fourteen fifteen it started sliding down.
And I don't think that sellar financing went away. When
I think that we start to see is that we
started having a sellers could be more picky on who
they could sell to. They won't even necessarily sell in

(17:08):
the retail buyers. It's when hedge fund started coming at
eye buyers. Things along those lines started really hitting the
market and overpaying for properties and made it quote unquote
easier for the seller to sell without doing a whole
lot of heavy lifting. That's starting to change, and that's
what we're going to see as we get into twenty
twenty one and we look out a few more years,
this graph will continue to grow, but the overall number

(17:30):
has not really declined as far as the revenue side
of it goes. Just another couple of things on statistics
and sort of a stat nerd Residential makes up about
fifty three percent of all the seller carry A lot
of people don't even know that you can owner finance
land or owner finance commercial properties. Heck, before nineteen ninety

(17:51):
almost everything was transactive this way, and banks got a
little bit wise to it, and they wanted they final
it was better to reset the mortgage and have somebody
recalled qualify. So these are just some of the statistics here.
Just another supply here. I want to point out in
twenty ten seventeen we were about almost eight billion in
seller carry volume. In twenty twenty one we're almost fifteen.

(18:14):
Hasn't quite double to'll probably be doubled by next year.
Why is that, well to think the same reason as
we said, it's a substantial part of the industry, which
is where most of the people's notes come from that
don't look to buy notes, So we want to talk
about those here. So another another stat I just want
to show this shows LTV about seventy seven percent. But

(18:35):
what I thought was interesting on this slide that year
over year it had gone up forty nine percent in
in the value, meaning in this slide here shows two
hundred and sixty nine thousand dollars. That seems awful high
to me. I didn't, I can't. I don't have a
way to verify this data, but that tells me that
people are getting more and more comfortable with seller financing

(18:57):
as an option. Five ten years ago, people the houses
that were sold on seller financing were beater houses. Man,
they were stuff that would never pass an FIH infection.
You couldn't get a mortgage on it because either the
value the value was too low, something along those lines.
But now we're seeing really nice properties turning into seller financing.

(19:18):
I think landlords are getting getting smarter and they're going, well, heck,
I can get the same on the net cash flow,
if not more by becoming becoming the bank versus being
a landlord, and they're okay doing so. This is an
interesting slide here because this is what I want to really,
this is where I really want to start diving into
that over the last twelve months, and this numbers actually

(19:40):
gone up and only eighty four that eighty four percent
of all notes that are created are one note creators. Okay,
and let's talk about this for a segment. When I
say that is that they're probably mom and pop note
writers that have no experience in writing notes, no experience
in underwriting, and as a result, you have inferior files

(20:01):
and collateral files that are that have a lot of
holes in them. Which it's one thing that to go.
It's one thing to negotiate the risk, to negotiate the
price based on risk, but it's another thing not to
have an accurate an accurate, accurate file. And the biggest
thing I see personally in this eighty four percent is

(20:24):
that since Dodd Frank, you know, you're anybody can write
just one and not have to really abide by any
of the Dodd Frank requirements rules. I think that's highly foolish.
In my opinion, I would never write I would never
tell anybody to write a note without doing an underwriting, underwriting,
the buyer doing have an RMLO, do that that process.

(20:48):
It's just two important relative to the to that to
just a lot of different things, especially note value. But
most of these notes that we see, that's what's happening
is they're not profess underwritten a because they don't know
how to or be because it's not required. So it's
a big number and that's the that's the kind of
paper that most people that are looking at buy notes

(21:11):
have to have to determine if it's worth buying or
not and trying to assess the risk. That's very subjectively.
It's very subjective when you have a fully stacked underwriting
file because very it's a very objective process on the
value because all the all the boxes are checked, taser crossed,
eyes are dotted, and it's a very well written note

(21:32):
and a very well stacked file. I'm going to show
that here in a second. There again, I just to
sort of recap on it. Just shows a little bit
of how some of the volumes is. It's fluctuated, and
you know, it's around fifteen percent of all the notes
are written are written what I would call by professionals pros,
which is what we fall into and how we teach
other people to do it. But that doesn't mean they're

(21:57):
always doing it the correct way either. Because I know
this fact because we consult with them. People that have
written fifty hundred notes, and there's just mistakes all in
it and really important. The reason why I learned all
this how come I I've found all this out because
when we were selling Rylex's capital, they were doing they

(22:18):
were basically ripping across our file folders and of all
their notes are written, and they were telling us what
we did write and what we didn't do right, and
we made the We're able to make those changes and
adjustments because we probably wrote five hundred notes where I
would say they weren't correctly. They weren't. They were poorly
written relative to how they're written today. So you know,

(22:43):
your ability to learn from this, I think is extremely
valuable if you're really going to get into that, either
buying a note or creating a note. So let's continue on. So,
you know, I want to talk a little bit about
what is being the bank because you may have a
lot of people on this call that never just say, hey,
notes sound cool. I saw something, you know on a
video and I thought, let's check it out. Well, being

(23:04):
the bank is just control versus owner, right, It's what
banks do. Right. Banks learned a long time ago, Hey,
let's control our own. Banks don't really own anything, not
intentionally at least, it's about amorganization versus appreciation. It's a
secured asset. Well, sometimes you have secured assets and other things.
It's about being a lean lord, not a landlord. Okay,
so why be the bank? Well we talked about that

(23:26):
a little bit already. But the couple of things that
I like about being the bank It just gives you
more options and if you have the ability. A lot
of people think creating a note and being the bank
is hard, it's really not. I would argue that if
you have the right systems and processing plate, it's easier
to do the original creating yourself than it ever is
to go buy a note and try to underwrite and

(23:47):
review every paragraph of every page of every document in
an underrunning file. And I think that's where a lot
of people really make a fundamental mistake, is that they
sort of glaze over. They think it looks good the
notes performing, but end up becoming a problem and a
job unless you're just a seasoned non performing note specialist,

(24:09):
which I am not, and I have no desire to
have non performing notes because I don't have to. I
have high quality performing notes. Why would I want non
performing I'm perfectly content with the yield and the consistency
of what a performing note provides. The other thing is
that the pretty buyer avatar is declining. We talked about
that sixties seventy percent, and honestly, you know, hedge funds

(24:35):
are going away from the sellers in a lot of
different categories. And be quite honest with you, hedge funds
just don't buy everything. Hedge funds don't buy everything in
secondary or tertiary markets. Hedge funds don't always buy stuff
older than nineteen eighty or less than three bedrooms, or
in a population size of under one hundred thousand, or
whatever it might be. So you have the ability to

(24:57):
provide opportunity in the markets where funds don't normally participate in.
So why does this model work? So just just to
recap on it, Well, you know, it's a big market,
it's lower it's low risk with high yields, and it's securitized.
But eighty percent of these buyers or eighty percent of
renters rent because they have to, not because they want to.

(25:19):
So when you're able to, I cannot tell you how
many buyers we've sold properties to and our clients have
sold properties to where they where. The buyer says, I've
been told for years and years and years that i
can't buy because I can't qualify, and it's just not true.
It's just they can't qualify. Traditionally, with the bank, these
buyers are everybody is. Every bit is good, if not

(25:41):
better than the borrowers that banks qualified. They just have
a little bit different path to get there. Okay, so
why is this important? So I'm going to just talk
about the value proposition just for a second. Okay. So
what we do with our clients is that we help
them create performing seller financing notes. We recommend creating a

(26:01):
first and a second lean for a lot of different
reasons if they're creating them, because when they create a
first and a second then allows them to stay in
amaturely participate in the back end. But it also provides
a lower investment of value to the first the first
lean note buyer. But all this has done for you,
so really think of it this way. You have to

(26:22):
find the property, you have to analyze the deal, you
have to figure out how to fund it, and you
have to sell it right, which is no different than
anything else on a real estate side of a transaction,
whether you're a wholesaler or a landlord, fix and flipper,
whatever's it all starts with that. The difference is once
you get to the when she gets to the exit
and the creating of the note. Well, what we've done

(26:44):
through USA NOTEPRO is that we've we're able to provide
that opportunity for to manage the transaction. And the reason
why we do that is because we're a note buyers. Okay,
so we're a note buyer and we know what the
note should consist of, and that's what we like to see.
So we stopped trying to because people would send us
notes all the time and we don't have to look

(27:04):
at an amount of time and energy and effort just
to review a file and find out that it wasn't
going to work was just painful, to be quite honest
with you. So we just provide and say, look, we'll
we'll do we'll, we'll help do this work and hold
you in and used to have the way. But all
the documents are fully underwritten, they're DoD frame compliant, they're
qualifying mortgages we do. We don't do contract for deeds.

(27:26):
We do only mortgagees of trust. It's all thirty party,
all third party service. It's all managed in house. We're
able to control the chain of custody of the file.
You know, we're able to do mortgage post closing quality
control if need be. And then we talked about, you know,
whether you can write just one note but get maximum value.

(27:48):
We've learned and we'll talk about these ratios here in
a minute. Sell the first, keep the second, keep the
cash from the down payment, move on. Our note buyers
are ourselves, but there's also fortune five hundred companies, family offices,
private equity groups which don't like to necessarily deal with
the one offs. They want to have it in a
trunch and be able to do it. And we're able

(28:08):
to do those kind of things. So you know, if
you have a note that you're thinking about creating, you
want us to look at it, and you want us
to help you structure it. Reach out to us. We'll
give you some information on how to do it. It's
extremely inexpensive. It will cost you twice as much to
do it yourself. It will cost you five times as
much if you do it wrong, I can promise you.
So let's go on to this next slight here. So

(28:30):
the note creating process. What does that mean? Well, I
just said how you find it, analyze it, fund it,
and find a buyer. And then everything in the red
is the stuff that's done that can be done for you.
This is where a lot of the mistakes are made.
I don't write my own promisory notes. I don't write
my own documents. That's what the professionals get to do.
Everything's done at the title company, at the servicer, at
the underwriter, with the attorneys. It's all done in a

(28:54):
very specific package and fashion that we've already reviewed and approved,
and it's just plug and play based on our criteria.
So if you want to learn how to sort of
maybe structure a note, if you go to cashfload deal
machine dot com, you can download a copy of our
sort of our prese. It's a spreadsheet. It just shows
you how to plug in information and sort of how

(29:16):
to structure the note for maximum value. Because whether you're
a note creator or note buyer, I just want to
be extremely transparent on why this is important for both parties,
all parties involved, because if you're creating and you're selling it,
there's benefit to the note buyer. But if you're staying
in the deal as well. In the second lean position.
That benefits you because there's cash flow as the creator,

(29:39):
but it also benefits the first lien buyer. Okay, So
and this is basically what it is. So and when
you do the perfect note, it's really a win win win.
The note creator wins because they may not be able
to sell this to a retail buyer. Maybe it can't
pass an FA chain INSPECTIONR for example. Well, guess what,
I have to pass the FICH inspection and just have

(29:59):
to have a I said, it's in line with value
and something that a seller and a buyer agreed to do.
The new homeowner wins because we already talked about that
they weren't able to buy a house to begin with, okay,
or they couldn't qualify for the house they wanted to buy.
The noe buyer wins because of the three items here
in the yellow we're only going to they're only buying
a seventy five percent or less of that of the

(30:21):
value of the property, so their investment of value is lower,
and we're trying to get that down close to seventy percent.
So it just puts them in a much better position
from a risk from a risk perspective. Okay, like I said,
it's a fully underwritten buyer. We don't do CfDS. You
can do a CFD if you want to do a CFD,

(30:42):
we have no interest in them. I don't believe there's
any additional protection personally with doing a CFD. But I
don't do business in all fifty states, so I can't
speak to that personally. But I do know this. I
don't know one bank in the United States that does
loans in any of the fifty states that does a
contract instead of a mortgage data trust. And I always said,

(31:02):
if it's good enough for the banks, it's probably good
enough for most And that's the policy and a position
that I have on that. And then what I think
is sort of extra extra value is that since we're
creating a first and a second lean okay, the note
creator stays in the second lean position. And I think
it's extremely valuable because the note creator has all the information,

(31:26):
knows the property, and probably has a relationship with the
buyer because they had a conversation with them, probably is
local to the property, and it just keeps them in
if their majority of their properties in the form of
the cash flow from the second note. You know, I
love when when people are in the second lean position
that have some skin in the game, because it just

(31:46):
protects my position I'm from in the first lean position
that's only at it. It's like having an additional co
signer on a loan. Heck, all I had three or four.
I don't really care sometimes because the more the merrier
when it comes to tection protecting the investment. Okay, So
here's a little quick tip for anybody that's buying notes, okay,

(32:08):
or creating notes. I call it. It's the ZHVII, which
answers Zillah Home Value Index. So go into Google and
just type in ZHVII and the zip code and you'll
get a median home price. Okay. And what's what I
like about this is, if I'm buying a note or
I'm creating a note, I want to know what the

(32:28):
median is. And I surely don't want to be above
the median by a large percentage. I don't want to
be in the upper twenty or twenty five percentile of that.
I want to be below it, like to be the
median or below. I'm going to show you an example
what that looks like in this example is two hundred
and eighty two thousand. It also gives you the one
year change. So this zip code has gone up twenty

(32:50):
seven percent in the last twelve months. Now that is
going to definitely change because we've already shifted away from
being an uber hot seller market starting to cool off.
These numbers will change and it will start to decrease
over time, But that doesn't change the difference on the
value index. Okay, so this could still be two eighty
two next year, maybe two eighty five, but the precent

(33:14):
change might be three or five percent. So why is
this important? Well, let's just look at an asset for
a second. Okay. So in an asset that we just did,
we sold it for one seventy five, the ARV value
was two fifteen, but the median home price is to
eighty two. All right, why is that important? Well, it

(33:37):
may not be important, but what I like to see
is that I'm going to acquire an asset for one
hundred and seventy five thousand dollars and I bought it
a sixty seventy percent investment of value. But the value
of that neighborhood in that zip code is much higher
than my property I'm on the lower end the spectrum,
which is where exactly I want to be any event

(33:59):
that I had to take a property back in the
event of a default. It doesn't mean the notes going
to default, doesn't mean it's not going to perform. It's
just another variable that we look at when we're creating
the notes, and guess what, when we go to sell
the notes, this data is there as well. Okay, so
let's go on to the next one. Here, move this
out of the way, because it just moved it and
I can't nick.

Speaker 2 (34:20):
We get a couple questions on your gap.

Speaker 3 (34:23):
So on that.

Speaker 2 (34:26):
Revel asked what was that Zillow code again?

Speaker 3 (34:29):
So it's just I'm trying to move this thing out
of the way for me. Oh, let me go, let
me go back. I think I can go back. So
it's zhv I. Okay, which is this right here? So
it's z hv I and then whatever the zip code is, okay,
So go to Google. Just type in zhv I zip
code seventy two and you'll get a little you get

(34:50):
a little statistic report for that particular zip code. It's
really helpful if you're looking at a note to buy
because in this example, here if I'm paying if you know,
if this, if this came out and say the zill
home index was one forty. Okay, and the value because
there's properties that are worth two hundred ten thousand dollars
in a medium home price neighborhood at one forty happens

(35:13):
all the time, right, So that's all we're saying. That's
that's the picture that I'm looking at. I'm showing there,
so that hopefully that answers the question. Yeah, put zh
valume zip code in there in the thing. Was there
any other question before I move on?

Speaker 1 (35:25):
Yeah, VICKI asked a question so that no creator stays
in the second lean position, How did the seller.

Speaker 2 (35:31):
Be tind to be in the second position? One of
my missing Vicky.

Speaker 1 (35:33):
They're creating a first and a second, so like an
eighty percent first and a twenty percent second or a
fifteen percent second. I do.

Speaker 3 (35:41):
It's on the next line. Let's go to the next
line and see if it shows you nex. That's a
great question, and if not, I'll try to break it down.
All right, let's see here, Okay, yeah, I think yeah,
so yeah, well it doesn't show it on here specifically,
So this is sort of the summary on it, right,
So this sold it for one seventy five, got fit
teen thousand dollars down, so the down payment gets kept

(36:02):
by them by the creator, right. This is the note
creator side seller finance. This particular one was done at
a seventy five percent first So one thirty two of
one seventy five is the first lean note value. The
difference which doesn't show up on air, We can do
the math on it real quick. One thirty two plus

(36:22):
fifteen is one forty seven. Uh So was that a
twenty eight thousand dollars second note? Okay? So the seller
a note creator, stays in this deal with a twenty
eight thousand dollars note because they sold the first off
at a seventy five percent, So this situation, they got
eight point six percent down. They wrote a seventy five

(36:42):
percent first, so that turns out to be what about
a does it come out to be seventeen percent give
or take seventeen sixteen seventeen percent second? Okay, So let's
break this down for a second. So the note buyer
that's going to buy the lean wins because they bought
a one hundred. They bought one hundred and thirty two

(37:04):
thousand dollars note at a nine and a half percent
coupon for one twenty eight in this example against the
property that's where two hundred and fifteen thousand dollars okay
against the market median home price of two eighty two.
I like my chances as a note buyer if that,
if I can get that quality of a note. Now

(37:24):
there's a premium with that, but I but I get
you know a lot of people want want the convenience
of the known quantity. I know, that's what I do.
That's why you write it. So in this situation, the
investment to value is sixty four percent for the buyer.
I don't have the second lean on here. I probably
I think I had it on here and I took
it off. But in this situation, the net cash on

(37:46):
this deal, it might be actually on the next side,
was probably five or six thousand dollars plus the free
and clear second note. It's a great model, I mean,
because it takes you out of the risk perspective. If
you're going to be creating and you end up with
a bunch of you're a creator, you end up with
a bunch of free and clear second notes, or very
little investment to get a very very large second note,

(38:07):
and the first lean holder wins because he's buying into
such a low investment of value, Whereas if you write
it for a big, large first lean, the discount you're
gonna have to take is going to wipe out the
majority of the profit. That's why we don't recommend doing it,
and I would rather defer it because I know that
the note is going to likely perform if we underwrite
it and structure it correctly. Any other questions on that,

(38:28):
I think we'll get a little bit more when we
go to the underwriting, but I want to make sure
before we move on, I don't miss something on that.

Speaker 2 (38:35):
Sicky ASKI.

Speaker 1 (38:36):
If you're in a second lead position in the bar
starts buying and starts paying you, do you still have
the right to foreclose subject to the first Yeah.

Speaker 3 (38:42):
As always, And we're going to talk about how that's
a great question, And when we get to the underwriting
side of this, we're gonna tell you. I'm going to
show you and tell you what we do and how
I do it. Sort of gives us an extra couple
of layers of protection on that. So let's go on here.
So I gotta go back the screen, all right, So
this is let's do a quick little recap. Okay, we're

(39:05):
if you're a wholesaler, realtor, fixing flip or landlord, private
money lender. I are a note investor. You can be
on either side of the fence on this. You can
either be a creator or a buyer. Okay. We also
buy notes too in what we do, and we work
with people so that people can do it. If they
follow the protocol, we become a buyer as a result
of following it. But if you bring me a note

(39:27):
or bring us a note and it wasn't followed the
protocol and system and process we recommend, we will likely
not be a buyer because we would probably make you
an offer or indicative bid, but where it's probably going
to be at a very low price because we have
to go fix it and make it look like we
want it to look like. Okay, so let's talk about

(39:48):
structuring the deal real quick here. Okay. Oh, before that,
let's get into the numbers. Okay, so this comes from
paper Stack. Let me my own paper stack is. It's
a great prop platform if you're looking to buy, but
I love other people's numbers. Because I can just leverage
and put them up against what we're actually doing ourselves.
So as we get into this, I want to point

(40:10):
out a couple of things from their report, okay, and
I highlight them in the other one that's going to
go the first one. So the first one talks about
performing versus non performing. Of all the assets that's sold
on their platform, seventy four percent of assets sold, we're performing. Well,
it gets back to the supplying demand piece. Well, well, I
want to be on the side. I want to be
able to sell something that's performing. Okay, Well, brand new

(40:32):
note by definition is not not performing, So I guess
it's technically performing, but it's not non performing. I know
that for sure. The other thing I like is at
here and going to the left to right, all the
notes that are sold were first position notes eighty four percent.
So all the notes that were sold were eighty four percent.
Now does that mean there wasn't that many second leans

(40:55):
on the note on the platform? Maybe not, but just
objectively looking at it, first lean positions are more valuable
and then desirable than second That's why I have no
problem keeping the second and sell in the first because
I don't have to discount it, because if you discount it,
you lose all your profit on the second note. Going
down here another statistic I think is just very very

(41:18):
valuable mortgage note versus contract for deeds. Okay, seventy eight
percent were sold were mortgage notes. Now there again, I
don't know if they were that was that high because
there's just that many more mortgage notes churches contract for deeds.
But I do know that more contract for deeds are
deeply penalized by most sophisticated note buyers relative to mortgage

(41:43):
mortgage notes, Okay, mean does it mean it should be?
I don't know, but that's just a statement of fact.
And the last thing in here. Most assets are sold
in sing single assets versus pool. And the main reason
is because most people either a don't have enough assets
to create the notes on or be they you know,

(42:04):
they they don't have time on their sides to build
a big enough portfolio to sell them in a pool. Okay,
which is hence the problem is that most note buyers,
to get you maximum value, are going to want to
have a large tranch of notes to take down because
they just they can't deal with a bunch of one hundred
and fifty thousand dollars notes not efficient for them to do. Okay,

(42:26):
let's go on to the next side. Let's see so
why create the perfect note? And I think this is
where I want to spend all the time on what
we see from our experience in our track record that
our notes sales average ninety percent or above of UPB.
So if you believe what the paper stack numbers to

(42:46):
be accurate, they were eighty two to eighty four percent,
depending on which number you're looking at, we're well above ninety.
So just by creating it the right way and following
better business practices, then the note value that you're going
to get back on the sale is going to be
somewhere in the eight to ten percent higher than the average. Okay,

(43:10):
So what does that mean? Well, if you're going to
create a million notes a million dollars with the notes,
that would end end up netting you about an extra
eighty thousand dollars to your bottom line. It's significant. That's
not that hard to go do six or seven, one
hundred and fifty thousand dollars notes, not anymore, it's not
it's there and so, but that's what's going to get
you the max max value and you're doing there's a

(43:33):
lot of other factors. And I use the analogy I'm
in Texas. I use it. Call it my Ford f
one fifty example. So you know that you have two
white Ford f one fifties with fifty thousand miles. They
both were built in twenty fifteen, and uh, you know

(43:53):
they're white with tan interior. But one of them has
perfect maintenance records. There's not a scratcher being on it.
It's in it's in pristine condition. The other one looks
like it's been through a tornado. You know, there's there's
the seats are torn up, there's no records, the tires
of ball, the breaks don't work, there's not a there's

(44:13):
not an inch of paint that's not scratched, dinged, or damaged.
Which one of those is worth more money? Okay, doesn't
mean that you can't buy the beat up one for
a better price and fix it and maybe end up
in a better position in the long run. But that's
not what most note buyers truly want. They want something

(44:34):
that's going to perform and move and be dependable. That's
what I've seen from my experience of doing this. They
don't want to have to mess around with a non
performing note. Okay, non performing notes are work. Okay. Doesn't
mean everything that we write is going to perform, absolutely not.
But I like our chances a lot better when we've
done all the things that are necessary to give us

(44:57):
the best chance of of obtaining long term cash flow
through performing through a performing note. Okay, because that's exactly
what the banks want, the funds want, the private equity groups,
the family offices want. They don't want to mess around
with anything. They want to deal with the predictable return,
and they're willing to pay a premium for it and

(45:18):
even take a little bit less of a yield on it,
knowing that they don't want to mess around with it
because all those things cost them time and money and velocity.
So how do you create the perfect note? Okay, well,
I think that's what I want to spend a few
minutes doing. Here. The good news is, I'm going to
go back to this other slide is that you're better
off not doing it. You're trying to do it yourself,

(45:40):
but let somebody that has the expertise and experience do
it for you. Okay, you're going to have to pay
somebody to do something anyway. So at least because here's
what happens. Okay, you have a title company and you
and you have the attorney create the promisory notes for example. Okay,
but they write it from a legal perspective. They don't
write it from a bank's perspective or a note holder's perspective. Well,

(46:03):
there's a lot of things that you can integrate into that,
those that verbiage of those notes that gives you extra
layers of protection as you go on. Okay, but we
talked about the ability to fully underwrite the buyer. The
buyer I think God Frank and the RMLO is extremely
important when I talk about that here in a second,

(46:23):
and so on. So just know that there's a there's
a place that you can go to have somebody manage
the transaction if you choose to, if you really are
seeking not only maximum the maximum price if you want
to sell it, but if you also want to stay
in the deal long term. And it also just the

(46:44):
legal protection of it too. A lot of people make
mistakes in the creating of the paperwork, and once that
borrower signs those closing documents, you cannot go back and
fix fix some things. Okay, so this is it. Orange
stuff is what you're done. The bottom stuff is what
we can help you do if you choose to, and
if not, at least get a copy of a We'll

(47:07):
provide everybody a copy of a redacted file of all
the documents and stuff that's in it. Scott. If they
just gonna they can just reach back out to us.
We'll give the permission, be happy to provide that to
them so they can if they really want to go
look and create it and see what's in it. I'm
really more about education first, to be able to get
them to create the right the notes the correct way. Yeah,

(47:30):
did you have Okay? Good. So some of the things
that gets done that that most people neglect or and
these are this high level stuff. They don't put all
the required documents. They don't use an ARMLO. You know,
they don't do disclosures. For example, here there's probably twenty
five to thirty disclosures in a properly underwritten borrow or file.

(47:52):
And I can promise you on the files that I
look at that don't use ARMLO, disclosures do not exist.
And those disclosures are there for a very specific reason
because when don Frank was written. It was they wrote it. Well,
it's debatable, but it was really to protect the borrowers.
So they say, I maybe they did, maybe they didn't,

(48:13):
but let's assume that that's the reason they did it. Well,
when a borrower goes through and they put their name
and they sign on twenty five to thirty disclosures, in
my opinion, that's protecting me as the creator the note
because of all the stuff that's in that file. That
that adds another layer of security for us in an

(48:34):
event that anything ever materializes down the road. Okay, we
always use a third party servicing company, very very important
for a lot of different reasons. A couple of the
couple of highlights on there is that when we write
the promisory note with two leans, it's one payment letter

(48:55):
and it goes to one servicer and there's only one
servicing fee and gets applied accordingly through the through the
through the paperwork. And what's nice about that is that
as long as the buyer, the first lean leaves it
with that servicer, it's very uh, very effective in keeping

(49:17):
everything performing and protects the second, the second lean note
holder as well. Now, there's always times that we sell
and they want to self service. That's great, but we'll
cross those bridges when we get to them. But in
the beginning, we want everything going into borrowers making one payment.
We always escrow taxes and insurance. It's never an option.
And then what's nice about it when it comes into

(49:38):
the servicer, then they distribute the funds UH as as
as dictated for the agreement to the first and the
first lean older, second lean older access UH the escrows
and uh of insurance and taxes as well. We always
get a lender title policy as well. And that's a
lot of things I see missing in a lot of

(49:58):
collateral files that there is no liner title policy. You
can always add a lendered title policy. As extremely expensive,
they add a lender title policy. That's a fact. But
most people that don't out of sight, out of mind.
If they don't see it and it's not on their checklist,
a lot of times it gets missed when they buy
the note, and that and hence could cause an issue
later down the road. Okay, some other documents mortgage de

(50:19):
to trust document checklist, all the due diligent clutter files,
all the verbiage that goes in the notes, the payment letters,
how the servicing is structured disclosures, and how we write
the disclosures, how we write insurance borrow or insurance. One
of the things that we like to do is we
list the servicer as our mortgagee on the insurance policy.

(50:45):
The reason why we do it is one, they have
a fiduciary responsibility to us anyway. Two that's their job
to manage that. But three is that when we turn
around and sell that first lean to a new note buyer,
we don't have to necessarily go back in and change it,
which is extremely you know, time consuming and an issue.
You get to have the borrower go and update that

(51:05):
and just we try to eliminate that stuff on the beginning.
Same thing with our trustee we have we make sure
that whoever's listening on the note as a trustee is
somebody that's that could that can handle a foreclosure trustee
uh foreclosure in the event of that happening. We want
to have that already done in the beginning. You can
always change it. We always want to focus on getting

(51:26):
it best as best as possible from the very beginning.
And these are all approved docs that I personally improved
that I've done from years and years and years, and
they're all there now. They're they'll be different for different states,
but conceptually they're all relatively the same. So this is
just an example of all the documents that you should
be looking at. I didn't have enough room to put

(51:48):
them on one side, and I really honestly didn't want
to break them down any deeper. There's a lot of documents.
There's byside documents. When the property is bought, we like
to see those in there. We have no problem disclosing them,
because if you're going to stay in the deal in
a second lean position, you may need to go back
to those at some point in time. You may need
to see an owner title policy. The reason why we
put them in there when we sell is that they're

(52:09):
they're really not that important to the transaction. But what
we've learned over time, it's inevitable that somebody wants something
from before, and they inevitably asked a question. When people
ask questions, it takes time because you got to go
look and try to figure out where they all were.
So by just providing everything from the very beginning to
the note buyer, it just makes things a lot cleaner

(52:30):
from the very beginning a couple of highlights on here.
I think I already addressed them two of them at least.
The RMLO package extremely important to go through that when
it goes into the transaction management system and it's being
done for you. The RMLO is set up on your
behalf with the buyer and the RMLO to get the

(52:52):
documents created so you're not going out and trying to
find that that ARMLO to do that. That underwriting for you,
proof of buyers insurance. I think we talked about that.
We just on there. We make sure we list the
I list the servicer as my mortgage ee on it,
and then other thing that we put in a lot
of stuff when we when we sell this property, we

(53:15):
do it. We highly recommend it, and a lot of
people will do it. We always try to put a
write a first refusal to buy that property back if
that buyer decides to sell at some point in the future.
Because if I, if I have an opportunity to get
that property back and it's a really good owner financed
opp property I have the ability to buy, I can
have it to buy it back and I can recreate
the process. Because properties are hard to find at least

(53:37):
the ones that you want to that you've already done
the work on. If you already fixed it, For example,
you're fixing Flipper, and you already fixed it once three
years ago, you already know what you did. Nice to
come back and buy a property that you already have,
we can put those those terms in there as well,
file it with the closing documents, record it and have
that on there. It doesn't mean you're going to buy
the property back, doesn't mean the seller has to sell

(53:58):
it to you. It's just one more thing that allows
you to look at it. And then on the note
sale side, you know all the approach plus all the
other documents. On the buying side, it going that note
sale package, purchase sales agreement, the collateral assigmus, transfer transfer
docs and launes. That's all part of this process too.
So when you when you if you choose to use
this to do under U, to do the transaction management,

(54:21):
you get the management of all this, the creating of
all the documents, the archive of all the documents, and
then also the facilitation of the closings for both the
selling of the property to the borrower as well as
the selling of the note. If you decide to sell it,
So pretty valuable stuff in my opinion. We're getting complaints
on it, and it's like I said, it's probably twice

(54:44):
as cheap as if you try to do it yourself,
five times five times more valuable if you if you
if you screw it up instead. So let's still I
think that we're about done here.

Speaker 1 (54:55):
We got a few were good, we got you know,
the key to this is the to create a premium
note of value, which is the difference between the performing
the note.

Speaker 3 (55:04):
We already talked about the Ford F one fifty. You
know this. This will recap We want all our first
leans to be under a seventy five first lean percentage.
If you download that that modeling software, you can it
defaults in there and you can show right away before
you even decide to go even go in to create
a note that you know, maybe if if it really

(55:26):
makes sense or not, the structure or how you need
to adjust it so it does either on the buy
side or the percentage to side. I think that's probably close.
Oh here, so if you want, you can scan this
code here, you can scan it. You can, that'll get
you in. You can register and then they'll send you

(55:47):
a copy of the Deal Analyzer exactly. You get a
copy of the four point seven trillion dollars secret. So
if you're doing any that's more on the IRA side,
So if you're doing anything relatively iras might be something
value value to you. We also do have a private
Facebook group where we talk about the creating side of it,
the front end of it, which is finding the deal,

(56:10):
analyzing the deal, funding the deal, and then finding the
seller finance buyer before you take it over to transaction management.
That's what the Facebook group does. We go live once
a week. You can just it's free, you just join
if you want to. You can also join our note
buyer's list if that's something that you're interested in and
learning more about the notes that we have available. Most

(56:32):
of the notes we have pre sold or they're sold
fairly close to after we create them. And you know,
if you need to reach out to me directly, you
can do so through the website USA no Pro or
directly here at Nick at USA no Pro. And that
is I think all of it, Scott. So hopefully there's
some questions. Hopefully we have you know, some things that

(56:57):
we can go back and share and we're going to
stop screw in my stream real quick.

Speaker 2 (57:01):
No, keep no, keep keep that up a little, yeah,
go back, keep it, keep.

Speaker 3 (57:05):
It all right, let me share it there you go? Cool?

Speaker 2 (57:10):
All right. So we got a couple of questions.

Speaker 1 (57:12):
Somebody asked, so, when you set it up search, do
you own the servicing company as well?

Speaker 2 (57:16):
Who are you using for certain No?

Speaker 3 (57:17):
I do not. Well, it depends right, because we do
stuff all fifty states. We uh, I primarily use august
Arai in the state of Texas. I don't have any
interest in that company other than that they have the
majority of the notes on the platform. When I started
using them, they had probably six or seven hundred notes

(57:38):
on there, and now between myself and the notes that
we've sent their way through relationships, you know, several thousands
of notes and I think they have six or seven
on their platform now. But what's nice about it when
it comes through this, When it comes through this process

(57:58):
there everything is treated one. It was ours. So we
have a very specific pot process that they follow relative
the way we structure it. That goes with the title company,
that goes with the servicers, that goes with the rmlos
as well. We do not we use our title companies.
We use our attorneys, we use our documentation. If you
everybody's more than willing to use whatever they want to use.

(58:21):
It's just I'm just going to tell you right now,
we will likely not be a buyer for any of
that note paper. It's just I've been there and I've
done it. It's just like I can It's like it's
like gun. It's like gun safety. Right, I can give
you the gun, but if you don't have the right
safety to do it, you're just gonna end up, you know,
shooting yourself in the foot or something. And I'm not
I just don't want that to happen. To be quite
honest with you, the notes that we write have been

(58:42):
bought bought by financial institutions. How the company was bought
by a bank. Can you write them a different way? Absolutely.
I just know that our model works and most people
are extremely satisfied with it. The note buyers like the
paper because they don't have to screw around with a

(59:02):
bunch of you know, stuff that's missing or not compliant,
or you know, a note that doesn't perform at the
end of the day.

Speaker 2 (59:11):
Well, it's literally written like a bank.

Speaker 1 (59:13):
I mean, it's written like a bank loan with all
the disclosures. A lot of people try to get away
without doing a lot of stuff, and it's clean, well written,
everything's dotted and crossed.

Speaker 2 (59:23):
And tied up.

Speaker 3 (59:24):
A lot of energy and effort to do it the
right way. I'm telling you right now. You know it
takes a lot of energy and effort, and as much
as I hate that part of the process, it's just
a necessary evil. If this is the business that you
want to be in long term. The way I look
at is this, it's a small price to pay for
something that has been up to a thirty year life.

(59:46):
You know you're doing something that's going to get that
You're going to get the benefit for potentially thirty years.
So I want to spend the time and build it
right from the foundation up so that it's withstands the
test of time as as best as possible.

Speaker 1 (01:00:01):
So I get a question here, Jay, it's probably new
to notes. He says, how would I you help if
I want to convert an investment property from a mortgage
note to a seller finance?

Speaker 2 (01:00:11):
Is there an advantage to the seller?

Speaker 1 (01:00:14):
And Ja, I think we need a little bit more
information on if you've got an.

Speaker 3 (01:00:18):
Investment property or is it a note that he already has.

Speaker 1 (01:00:22):
Well, it sounds like he's got an investment proper with
the traditional mortgage on it and he wants to I mean,
you'd have to either a cash it out or if
you do a wrap around mortgage, so do a sub
to deal and stuff like that. But it's uh, we
need to probably a little bit more information answer that question,
so you.

Speaker 3 (01:00:39):
Know, so you know, I'm going to put in the
chat real quick. I think I went by it. But
if you go to Creative Filmaker, I'm just typing it
right now, Anchor dot Com, slash video, there's the there's
an there's an example of a video on and it

(01:00:59):
was very similar to that. So we get asked all
the time because there's a lot of people that like
to do sub to wrap transactions and I'm not a
post to them, and we do them all the time.
But what's what I what I teach and what I
tell people doesn't matter how you acquire. You can acquire
it with hard money, cash, you know, line of credit,
seller financing, sub two, whatever it is, it doesn't matter.

(01:01:21):
But when you go to exit, it's always the same.
I mean, the creation of the of the of the
exit is always the same. We always I always write
a first on the second week, always, even if I'm
doing any of that stuff, even if I plan on
staying in that forever. I always write a first and
second because I want to get myself the option that
if I need to liquidate on for some reason, I

(01:01:43):
don't have to liquid it. I can always sell the
first in the second together as one note. But I
might not need all of it, because amortization is a
very powerful tool, you know. And if you can even
hold on to a twenty five percent of the deal
in the form of the second and sell the first
and pay off the underlying debt, why wouldn't you not
do that? I mean, that's the whole point. Because I've

(01:02:04):
done the map too many times, Scott. I just was
just consulted with somebody not that long ago. They go, well,
the buyer gave me so much downpaying payment that anyone
or he only wrote one mortgage, and he didn't do
it on what we told him to do, and he
wrote he only wrote one. I go, why did you
only write one mortgage? He goes, because the second would
have only been ten thousand dollars. I go, but you
understand by not writing it, you took a nine thousand

(01:02:27):
dollars discount because the investment of value in the risk
was much higher for the note buyer. Would you rather
have had a thousand dollars more cash or would you
rather just had a thousand dollars invested to obtain a
ten thousand dollars second lean, Because a thousand dollars on
a ten thousand dollars second lean's gonna you're gonna get
all your money back in months, plus you get the

(01:02:50):
back end. And the face value of the note is
actually much greater than what the than what it actually is.
The face value might say ten, but if it goes
and it goes full term, it's three acts minimum. You know,
it's a thirty thousand dollars thing. So you do not
want to discount any more than you have to.

Speaker 1 (01:03:10):
I think so many people struggle with it. They don't
I mean, most people don't talk about that. I'm like,
you gotta do that because you're gonna take the discount.
This is why you don't write a first for ninety five,
because you're gonna take a discount off of you know,
being at that spot there first lean, Well, I give
you seventy five to eighty cents of the value. Well,
it means you're taking on sixteen pers of discount, whereas
you don't if you just wrote a second and held

(01:03:32):
a second for cash flow.

Speaker 3 (01:03:33):
Yes, that's what and that's what that model does. It
shows that in there for you so you can visually
see it. Because I learned this a long time ago,
I would I literally wrote five hundred notes, Scott, and
it probably cost me six million dollars by the way
that they were structured, in the way I exited out
of them, I didn't lose six million dollars. It cost

(01:03:54):
me and that's face value, six million dollars. I mean,
in perpetuity, it could be fifteen eighteen million dollars.

Speaker 2 (01:04:02):
Let's not even talk about it.

Speaker 3 (01:04:03):
So it loss is your game. That's why we do it.
That's why we do it, and you know you can.
It's really the point. We're really trying to find a
point of optimality where it's the win win win for
everybody involved and for me creating the note and exiting out.
This is what it gets you to. And note buyers
have no problem paying a premium for a high quality

(01:04:26):
paper that they can set and forget bottom line. They'll
do it all day long.

Speaker 2 (01:04:30):
Yeah, exactly. What's the what's the website again for the song.

Speaker 3 (01:04:34):
If you go to Facebook and you go to groups
and you search creative deal Maker, you can find it
if you scan. If you go and scan the code,
you'll get a you can get that too, but it's there.
Go to creat a deal Maker searching in the Facebook
group and join the group. We got about four thousand
people in the Facebook group right now. So and it's
only specifically about the front end of the transaction, and

(01:04:58):
we do talk about note structure and why we structure
it that way because it's a Look, I'm going to
be honest with you, I'm I'm a little bit selfish
with this because I get the opportunity to look at
really high quality notes that are created. You know, it's
a win win. I show you how to do it
the right way so I can buy it. But it's
a win win. Everybody wins. If I don't hold it

(01:05:19):
long term and I want to sell it off, then
whoever that note buyer is gets the benefit of a
highly qualified create a note and can't There's not anything
that anybody loses, in my opinion, in the in the model.
So that's why you do it, so team Miller, He
goes on.

Speaker 2 (01:05:34):
He because I've had clients.

Speaker 1 (01:05:35):
I had client come to me to enforce a note
in foreclosure and I kind of find out have to
read the note on the mortgage agrement that the thing
is completely unenforceable under the law, or that they let
the borrower's attorney prepare the note, and it's essentially full
of excubinary clauses that prevent the enforcement.

Speaker 3 (01:05:53):
Yeah, you know, it's not a problem until it's a problem, Scott.
I mean that's the bottom line. Look, I can drive
down the freeway one hundred miles an hour without a
seatbelt on and it's not a problem unless I get
in an accident. Right. Well, guess what, I'm not taking
any chances. As much as I mean, I could still
get hurt put the seatbelt on, don't get me wrong,
but I like my chances of being less injured by

(01:06:14):
being prepared and then have it. And that's what we
ultimately try to do when we create this these notes
from the beginning and put the best business practice in
place and really think, act and be a bank. And
when when I say that, I mean it literally to
the point of how they underwrite a buyer and how
they approve a borrower. It's just it's just the right

(01:06:36):
thing to do, and it's there's a lot of paperwork. Man,
our files are really deep, but when we teach and
educate note buyers, they only have to look at it
one time and they understand it's the same. If it's
always the same thing every single time, it makes the
process extremely easy to replicate, and more importantly, it makes
it super easy for the people that are going to

(01:06:57):
end up being the note buyers once they know, like
and trust you that you have built this this high quality,
high grade note that they're ultimately after.

Speaker 1 (01:07:06):
Yeah, I totally agree that it's better to a little
insurance in the front goes in one way, and I
like to use anos instead of getting a wreck. I mean,
if you can drive on the highway no insurance, it's
all about when you do get in a wreck and
bump into somebody, you need to insurance.

Speaker 3 (01:07:20):
So make sure too late to have it then, Yeah, exactly.

Speaker 1 (01:07:24):
Alison asked when does the Facebook group mean?

Speaker 3 (01:07:27):
Typically typically we do that. We do office hours live,
Eric Sage and myself. We usually do it on Mondays,
at one pm one pm Central time and it usually
goes about ninety minutes. We stream it's a zoom register
for it. We have everybody on it. We bring bring
questions in, We go through deal deal or no deal analysis,

(01:07:48):
we look at the structure. We also stream it live
on Facebook and then once you're in the Facebook group,
if you're unable attend, you can go back and watch
the replace inside a Facebook group. It's really good even
if it doesn't matter where you're at at in the
in the note process. If you're looking to create, it's great.
If you're looking to buy, it's better because now you
know exactly what's happening. You know everything's done on how

(01:08:09):
to how to buy notes. Well, if you get to
buy a note, then you need to know really how
to create the note. As a result, because people are
looking for it so well, it's a great it's a
a great you know, attendance and participation. It's up almost
four thousand people now it's not even a year old
since we started it, and I think it provides great

(01:08:29):
value in really a sense of direction because it's exactly
what I do every single day, and there's no there's
no fluff inside of it.

Speaker 1 (01:08:36):
Yeah, exactly, I agree there, So those I guys have
trouble is it's basically looking for the Zillow value z
v h I and then put a zip code in there.

Speaker 2 (01:08:45):
And they'll pop up easy. I just I just tried
z v h I plus z.

Speaker 1 (01:08:51):
H v I z home value and except sorry, exactly.

Speaker 3 (01:08:55):
H v I and the zip code and it'll pop
that up. Just a cool little tool that you can
use to see where you are relative to the market,
because you know, people buy notes all over the country,
right there's you know, doctors in California are looking to
buy notes in Cincinnati, Ohio and they've never even been
to Ohio. Well, this is just one more piece of
data that helps you make the best, the best decision possible.

(01:09:18):
Does it mean it's gonna be your note's gonna be
great and perform? Now? But I like data, I like information,
and I can make a decision, much more informed decision
with more more facts that I have.

Speaker 1 (01:09:31):
That's so true, that's so true. Let's see here. I'm
going back there. If that's an answered, I think it's
see if I can see it, says David, asked if
the service is the mortgagee, does that doesn't that mean
you lose control of the mortgage.

Speaker 3 (01:09:46):
Say that one more time, Scott.

Speaker 2 (01:09:48):
If the service is the mortgagee.

Speaker 3 (01:09:50):
Doesn't know because they have a fiduciary responsible to me
as the lender. Yeah, they're license in bonded. You know
what's the diff what's the difference If I send my
money to estro it at a title company, they that's
their responsibility and uh, you know, bye bye by agreement,

(01:10:11):
by law, bye bye uh by license. Yeah, a lot
of people don't do it. I love it because guess
what I don't have to do. I don't have to
manage any of it. I mean, if there's an insurance claim,
guess what they get to do all that. I don't
have to mess with it. Man, who wants to mess
with any of that stuff? They'll do it all if
there's a change in the policy, there's a change in anything,

(01:10:32):
they get all the notifications, not me. I might be
out of the country. They're going to know somebody if
there needs to be updated or insured. Now, not everybody
likes it. I'm just telling you what I do and
why I do it, and I've never had an issue
with it, and most people don't either.

Speaker 2 (01:10:50):
So I love it.

Speaker 1 (01:10:52):
I love good stuff, man, great stuff. There any other
questions for nick uh here everybody? Great questions, keep asking
the check it out there? Scan that code there for you.
Vicky as not obligated to sell, but great, hang on here, Len,
We've got a few folks that popped in there.

Speaker 2 (01:11:08):
Okay, So.

Speaker 1 (01:11:11):
David he already answered the partial's question. I guess you
weren't listening. That's why he said go first and second
versus doing a first and then it's on a partial
is still going to take a discount on a part
that partial sell?

Speaker 3 (01:11:22):
Well, So so that's a great question. So let me
talk a little bit about that. So you could do that.
But guess what happens when you get when you when
you partial, you lose cash flow. Cash flow has gone forever, right,
I mean not gone forever, It's gone for as long
as the partial sold for right. Whereas when I do
a first and a second, Okay, I may still get

(01:11:44):
some cash for that, but I get I don't lose
my cash flow because the second is the cash flow.
So you know, it just depends on what you are
ultimately after, what's important to you. You know, some people say,
well I just have all the money because I can
invest in and make way more than eighteen percent because
I'm good at what I do. Other people are not

(01:12:06):
very good at managing money, and they'll spend it, right.
I like cash flow. I like having a bunch of
free and clear second notes that are sending in my
portfolio that I don't have any liability or dead on
and then and they're in there and I can just
let them perform. That's it. And I have other ones
where I have first leans and that's a different story
because it has a different function in the portfolio. Right,

(01:12:29):
So it just depends on where you are and what
you want to do. I always say, there's more than
one way to get to Chicago. You can walk, ride
a bike, take a train, ride a bus. You know,
it depends depends on what you why you need to
get to Chicago, When you need to get to Chicago,
how much money you have to get to Chicago. And
there's no right or wrong answer. It's only what's right

(01:12:50):
or wrong for you at the end of the day.
So this is no different. I mean, if I was
twenty years younger, I might have I might have a
buy and whole portfolio, Scott, but I'm not so that's
somebody else's decision to make on whether or not they
want to have a rental portfolio. I can promise you
I have no desire to own a rental portfolio at
my age when I can have free and clear performing

(01:13:12):
mortgage notes, or even any mortgage note that performs, and
I don't want to manage any of it because if
you build the system correctly, ninety eight percent of that
effort is done by the system and others not by you.

Speaker 2 (01:13:26):
Amen to that. That's the beautiful That's one of the
things I love about notes. Been there, done that with
the veccin flips. Nobody wants to do that.

Speaker 3 (01:13:31):
No possible cool jobs.

Speaker 1 (01:13:34):
If I gu said never once around waiting on somebody,
You're getting that call at two o'clock in the afternoon
on a Sunday or two o'clock at night when something's
wrong with the property, Yeah, and deal and the property managers.

Speaker 3 (01:13:45):
Yeah.

Speaker 2 (01:13:45):
I don't want to deal with property managers either.

Speaker 3 (01:13:48):
I don't like people that much, Scott, to be quite
honest with you, so I don't really want to talk.
I don't really want to mess. I want to talk
to anybody. I have our time, get along with myself.

Speaker 2 (01:13:56):
Well, we hope to see you this week next weekend
at the Dumb Mastermind. We said to be emails. Are
you coming out?

Speaker 3 (01:14:01):
I have I have a little bit of a travel conflict.
I'm going to try to get down there for part
of it. We'll talk later in the week and get
you an update, but hopefully I'll get a chance to
make it down there and see everybody that that comes
out to Austin and joins in.

Speaker 2 (01:14:14):
Sounds good now. We'll definitely grab a cl beveret sometime soon.

Speaker 3 (01:14:17):
Absolutely, all right, guys, hope, I hope that's been valued everybody.

Speaker 2 (01:14:21):
Very very much. So thank you so much.

Speaker 3 (01:14:23):
Nick, right, you guys be good, take care of Thanks
Scott dude

Speaker 2 (01:14:25):
Thanks your rush week.

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