005 - Own Nothing and Control Everything - Be The Bank

Episode Transcript
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Narrator (00:01):
Interested in real estate.
How about wealth?
Well, they go hand in hand.
And here you'll learn all aboutit.
About it.
Welcome to Be the Bank, apodcast where we discuss and
debate the topics centeredaround real estate investing.
Your host, Justin Bogart,share's insights into investing
in real estate to create realwealth and passive income for

(00:22):
you and your family.
He'll share stories of realestate investments done right,
walk you through the process ofowning a real estate note, and
most importantly, educate you soyou can be the bank.
The bank.
This is be the bank brought toyou by American Note buyers.
Now here's your host, JustinBogard.

Justin Bogard (00:46):
Hello, it is episode number five of Season
five today on the American NoteBuyers sponsored Be The Bank
Podcast.
Today we're gonna be discussingkind of some news and events
that are going, going on in thecountry today as it relates to,
uh, mortgages and the business.
Uh, we're gonna touch onorigination loans, newly

(01:08):
originated loans versus seasonedloans as well.
So stay tuned.
Hey Richard, how are you my man?

Richard Thornton (01:21):
Pretty good, sir.
And you?

Great.
Yesterday at Peg 70 Degrees herein Indiana.
Can you believe that?

That is amazing.
The north, north of SanFrancisco was 45, so I, you
know, 30 degrees differencebetween here and there.
And it's, uh, you know what,what is is, uh, what we're
thankful for out here, but um,is amazing is that by, uh, this
weekend mm-hmm.
, the skis willhave gotten over 10 feet of
snow.

10 feet.
Wow.

10 feet of snow.
That's a lot.
A lot of, a lot of skiers outthere are having a good time.

So is it safe to say it's 10 feet taller now?

Yes, it is.
, it's, you know, to thateffect, the Himalayas are
getting taller every year.

Is that because the, the earth underneath it is
pushing it upward?

Very good.
Very good.
Yes.
My,

She has been teaching me on the side.

I know my geologist other half would, you
know, would, would be, would beproud of you.
It's cuz it's subducting andgetting moved up and I can't
remember, I think it's, uh, fouror five centimeters a year that,
uh, Himalayas moved up.

Yeah.
This is to, this is totallytrue.
This is all fact.
This is not, this

Is big stuff.

.
Well, it is, uh, we're recordingthis here in March.
So in about a month we're gonnabe going on spring break.
So the girls have their springbreak, the first week of April,
and we are going to be going to,well I decided, and they're cool
with it to go to a baseball gameup in Detroit.
And so the Red Sox will beplaying up there and that's kind

(02:53):
of, uh, my favorite team.
So when they are local, why not?

I know I, you know, I'm looking all over here.
I don't remember seeing arequest for that across my desk.

Oh, put it in a time off sheet.
Yeah.

Where is this?
Where is this?
Huh?

Well, I guess you just found out that thing
better be approved.

You, you have two choices.
You can either do that or youcan invite me, which was better.
You better get the handwritingout very quickly.
No,

Well that's gonna be an expensive flight out there
for you.
From good old Petaluma.

Yeah.
Especially since I don't followbaseballs.

Right.

.
So what's going on in theconventional market these days?

Well, I saw a newsfeed that came across Pro.
I don't know if I was looking onFacebook or just, um, on Google
or Firefox, whatever I was on.
But, uh, you know, the owner ofthe Cleveland Cavaliers is Dan
Gilbert.
Mm-hmm.
and Dan also isthe, uh, owner of Rocket

(03:52):
Mortgage since I think 2020.

Okay.

And so, you know how Rocket Mortgage did really
well during that super lowinterest rate timeframe, which
was, you know, the 20, the 2020timeframe.

Most mortgage companies worth their salt did

Yeah.
.
And they made, they made a crapton of profit.
Yeah.
Well the opposite happened inthe fourth quarter of 2022.
Oh,

Can you imagine?

Yeah.
So they reported a loss for thefirst time since Dan's owned the
company.
I, I believe, I'm just, I'mtrying to remember what I read.
So if I'm wrong, I, I apologize.
I'm not, not trying to give,give a quote here, but I believe
they had 481 million in revenue,total revenue for that quarter.
Mm-hmm.
mm-hmm.
.
And they lost 493 million.

Hmm.
Last time I looked it up.
That

Doesn't work.
No, it doesn't work.
Hmm.
So I am making assumptions here,Richard.
And my thought is that the mostglaring thing to me is we are
not having nearly as many refias we did during the super low
interest rate, uh, timeframethat that happened a few years
ago.

(05:01):
Right.
So the one thing I can imagineis that refis are down just so
significantly that it finallyshowed up on the balance sheet,
uh, for these mortgagecompanies, specifically rock and

Mortgage.
So if you wanted to go out andget a new home mortgage today,
um, you know, uh, less than ajumbo, uh, what do you think it
would cost you?
20% with 20% down in your area?

Like the interest rate?
Is that what you're asking?

That would be Not the apr.
Nothing fancy.
Just the flat out rate.

I, we've been hovering around six and a half
for a while.
Oh, it's got up seven, been overseven for a little bit.
It jumped down closer to sub sixand a half.
Okay.
So I haven't looked in the lastweek or so, but I, I would
venture to say it's probablybetween the six and a half to
seven range.
I did see a little blurb todaytoo when I was doing some
research that said the Fed isprobably gonna start hiking the

(05:50):
rates back up.
They, I've heard rumors thatthey feel like they've
controlled inflation enough towhere they mm-hmm.
Feel more comfortable to jumprates back up.
So we may see a, um, a dancefrom six to 7%.
Yeah.
Maybe for a while, Richard.
I don't know.
Yeah.

I mean, uh, uh, you know, this is a
technical term I'm gonna use,but the, uh, I think the economy
is playing, uh, ne na na withthe, uh, like you can't, you
raised the rents or not therents you raised, raised the
rates and you want me to godown, well, guess what?
I'm gonna tighten back up.
And unemployment is now at6.36%, which is as low as it's

(06:24):
been in the last 20 years.
So na na nannie.
Yeah.
That's kind of amazing.
I don't, uh, it'll beinteresting.
Obviously they can't, uh,publish these stats on a
realtime basis cuz they can'tcollect quickly.
But, um, in the next three orfour months, we should know why
and what part of the sector, um,this is coming from.

(06:45):
Uh, I have been reading of lateand I think some of us have read
some of this and suspected this,but weren't necessarily knowing
about it.
But rather than calling it, uh,the rate, the great resignation,
they're, um, calling it the, theGreat Reset.
Uh, case in point, my neighbor,uh, has a very nice, um, upper

(07:11):
end restaurant here in the petalarea.
And during the, during the, um,pandemic, his executive chef
quit.

Okay.

And he had a whole bunch of time in his hands
and he went back and taughthimself coding.
And he's now making 120,$150,000a year, which is just as much as
he was making before.
And, you know, uh, he's not, uh,working until midnight every
night.
Not, not only his feet.
Now I think a lot of people havequoted the, you know, the coding

(07:42):
thing, but from what I've read,there's just a lot of resetting
going on that a lot of peopleare just taking jobs that they
still liked or they liked.
Maybe they weren't making quiteas much money, but they haven't
gone away.
They're just reset.

So are you, are you saying that you're seeing,
uh, people resigned frombusinesses and starting their
own kind of 10 99 or contractingwork?

Um, that, or they're just taking, uh, like
one guy was reading about, uh,took a job for a nonprofit, you
know, he's not making quite asmuch as he would mm-hmm.
, it's alwaysinterested him and, and, uh, so
how does that, how does thataffect the economy?
Well, a, he's still employed,but b that shows up as a stat,
as a new job generated.

(08:29):
Okay.
So that affects that 6.36%unemployment.

I, I've seen since, since Covid, there's been
a lot of people that went intothe self-employment part of this
, well, I'll call it the sectormm-hmm.


And which, which is great for them.
But I can imagine, like anythingelse in life, there's gonna be a
balance of it.
There's gonna be a flow towardsa bunch of people wanting to be
self-employed and wanting to be10 99 and trying to, and do
things on their own.
And then there's gonna beanother reset within that, that
they're gonna go back to anemployer because things may not

(09:03):
have worked out the way thatthey thought they would.
Or maybe it's just a lot easierif they don't do it on their own
and they ha and, and they'rewith the company that can
provide all the resources theyneed.
So I can, I can see that thingebb and flow for a little bit.
Um, I did notice a bigger surgeobviously in 2020 cuz everyone
was at home.
Right.
They couldn't, they couldn't doanything.
Right.
They couldn't go to an office.

(09:23):
So it, it made sense.
Right.
But, um, time will tell.
Yeah.

The only time I'm, I'm, I'm, uh, not happy
that I went into a business formyself is tax time.
Cuz when I was a W2 employee,uh, my employer handed me my w2,
of course it was my company, butstill it was, they gave me a w2.
I filled that out and filled outthe form and said, thank you
very much.
And even though I'm giving anaccountant all my stuff now I

(09:51):
know I'm getting, uh, 10 99, 1099 INTS from Alli and FCI and
BFI and collecting this andthat.
And you got, I got socked lastyear because I I missed just
one.
Yeah.
And the service came back to meand said, you didn't report
this.
They're right.
We goofed

It seems every year I tried to get taxes filed
for the business and for myselfby, you know, the march or the
April 15th and for thebusinesses March 15th deadline.
And it, it seems like there'salways something that I can't
get done because I'm waiting onsomething else from somebody
else.
Yeah.
And so it seems like thank Godthey allow for extensions
because I, I don't know if I canever file my taxes on time when

(10:34):
they're, they're supposed to befiled instead of, instead of
filing extension.
Right.

What else is going on?

Well, I wanted to bring up a subject today about,
uh, kind of, um, you know, the,the positives about a fund.
So we, we hear about funds allthe time, different types of
funds, mutual funds, real estatefunds, equity funds.
Ours is a debt fund and it maynot fit everybody.

(11:03):
And especially, it shouldn't beall of your eggs in one basket
type of thing.
Right.
You definitely should spread outyour retirement and your wealth
through other vehicles ofinvestment, whether they're
passive or not.
Whether it's some passive orslightly passive or slightly
active, however you wannadescribe it.
But, you know, pretty much anyinvestor that has, that starts
to get a sizable amount ofmoney, they, they really do
diversify that type of passiveincome in, in different, in

(11:26):
different verticals.
Right.
And the fund is really a greatway to do that.
But I see a lot of hesitancy inpeople wanting to do that
because I think they have thatfear of like, the money is
locked up really long term.
Mm-hmm.
.
And one of the pushbacks that Iwould get about a fund, uh, in
the past, in, in recently isjust they, they would just feel

(11:47):
like they just, they don't havecontrol of something or they
don't, they don't own something.
So I wanted to hear kind of yourfeedback, feedback on reasons
why that that really shouldn'tbe a big concern for someone.

Well, we, we could start a fund that has a
two, a minimum two yearinvestment period.
How would that be?

That'd be great.
Yeah.
Yeah.

Oh, why don't we do that?
Okay.
We've Oh, we've done that.
That's right.
That's right.
Um, go ahead.
I

Mean, it's funny that you say that, but what are
CDs, right?
CDs are, you know, six month,one year, 18 month, you know,
two year whatever.
If you do a CD with a bank,you're locked in that period
anyways and you're making asignificantly lower amount.
So what, what would be thedisadvantage there with a fund?
Well, really there is nodisadvantage.
It, it would be even betterbecause you know that you're

(12:33):
making more return and you're inthe same lockout period.
Right.

Right.
And so, I mean, for us,obviously we wouldn't want all
of our investors to get in andget out in two years and have
that be their strategy.
But where else are you makingsix and a half to 8% on a, you
know, our two year investmentAnd hopefully you'd like us well
enough so that you stay in a lotlonger than that.
But, but that's a strategy.

It seems like most people that I've done
one-to-one deals with, and wetalked about this in the past,
is that a, after they get thatpayment stream coming in for a
while, they get a couple ofpayments coming into them that,
that are their profit paymentsor maybe their, their principle
and interest payment thatthey're owed.
They like that and they realizeI didn't have to do any work.
I don't have to make any phonecalls.
I don't have to drive to aproperty.

(13:19):
I don't have to swing a hammer.
I don't have to call a realtor.
I don't have to do, you know,and they think about it like, oh
my God, I made this money verypassively and I have security
with it, high security and a lotof passivity.
And it just makes more sense tokeep the ball rolling or add,
add more to it.
Or they just keep that moneyover there working the way they
want and the rest of theirmoney, they kind of work more

(13:41):
actively.
So I I I see it's like, um, it'slike a trial trial by basis type
of thing.
You know, where they Yeah.
You have to get involved in andget some of these payments
coming in and you're just like,oh, okay.
I see it.

Right.
And I, I don't, you know, Imean, I don't need to belabor to
the point here, but, um, so gida, my significant other, uh, gets
about$2,000 a month from thevarious notes that she's
invested in.
And every once in a while shecomes back in and she's a
professor.
She works hard, she's alwaysworked hard for her life,
doesn't make a ton of money oranything like that as a

(14:17):
professor.
And she goes, wow, I didabsolutely nothing and I made
$1,950 or what, you know,whatever it was, you know, this
year.
And she's just tickle pink, youknow, and it's kind of funny.
She, she knows the reality.
I know the reality, but it'skind of a nice feeling
sometimes.
I think

I always tell everybody that the first time
that they invest in a note, Iwas like, you, you'll be hooked.
You won't be hooked because you,you know what's gonna happen,
you'll be hooked when that firstpayment comes into your bank
account and it's, and you, andyou realize, okay, I know what
I've had to earn in the past toget money to come, come into my
account now I'm not doinganything and that money's coming
into my account.
It, it feels really good.

Yeah.
Yeah.
I like it.
So I think there just theinstability of the market right
now is causing people to, to um,just pause a little bit and say,
where are they gonna put theirmoney?
And nice thing about, you know,mortgage notes, uh, whether
you're buying individuals or, ornot, is that they're stable.

(15:15):
You know, so are you reallygonna go wrong if you buy
something and you make 8%?
Well, yeah, you may have missedthe, the very top of the market
at some point if you get eightand a half or nine or even 10,
but it's gonna be a higherriskier, much riskier product.

Yeah.
It's like when do you fill upyour gas tank, Richard?
Yeah.
At at what price point do youwait as long as you possibly can
for it to get to B InCalifornia, I'm probably sure
it's like four or$5 per gallon,but Right.
If you're like, okay, if when ithits 4 25, I'm gonna go fill up
my tank, geez.
Tank the two 10 gallon gas cansthat I have.
Like, is that what people do?

(15:48):
Like some people may think theyshould do that, but they, they
don't, they maybe they don'tunderstand the amount of
time and the energy that ittakes to, to wait for that or
you know, when you can just belike, just fill it up when you
need to.
Yeah.
It's the same thing with realestate investments.
Like, people will sit on thesidelines for years those two or
three years and they'll holdonto significant amounts of
money.

(16:09):
And there's nothing wrong withit.
It's just, you know, there's ahuge cost that that money costs
you by waiting for somethingthat the, the perfect deal,
right.
There is no perfect deal.
It's just what fits yourparameter that day.
That's what you go after and yourepeat and rinse.
The more that money is workingfor you, the more it's just
making for you making for it.

(16:29):
It's sitting idle for a longtime.
It's really, it's reallydiminishing your return cuz
you're making nothing and you'relosing because of inflation as
well.

Right.
I'd have to check this just tomake sure, but I think that the
interest group, which is who Iuse for my IRA custodian.
Yeah.
I think they said that, uh, 30%of their total assets now that's
assets that their clients likeme are controlling, is sitting
idle.
People are doing nothing likethat.

(16:57):
And if you think of the cost ofthat, that's amazing.

So they take the money out of the traditional
stock markets and other seniorinvestments like that and they
realize I don't want to be inthat environment.
Okay, that's great.
You made one decision, yoursecond decision.
Okay, where can I put it towhere I can choose to where I
can make the investment, uh,decisions myself.
Okay, you put it with aspecialized custodian.
Okay great and now it's there.
And then what do you have to do?
You have, you still have to goout and find the investment.

(17:22):
Right.
So I think there's um, there'ssome timidness about they're not
sure what's best to do.
Right.
And everybody wants the lowestrisk with the highest return
deal.
That makes total logical sense.
We all wish we could find thatdeal all day long and fund it
with everybody else's money,including your own Right.
.
Right.
It just doesn't, it doesn'thappen that way.

(17:43):
You have to, you have to have tounderstand what investment makes
sense for you.
Do you want to be active withit?
Do you wanna have a rental, doyou wanna sell horses?
Do you wanna invest passivelywith another professional that
does do this for a living?
Like there's just Right.
A multitude of things and youhave to figure out what you
wanna do.
But the worst thing you can dois have that money sitting in

(18:03):
the account not doing anything.

Yeah.
Which, which a lot of people dojust that.
Yeah.
Armand, I'm probably guilty of,of keeping more in my checking
account just as rainy day moneyin case all the banks stop or
you know, we get hit by thehurricane or, or whatever.
But beyond that, I'm fullyinvested as much as I possibly
can be.
Cause uh,

But you have a plan.
You have x amount of dollarsthat you put in this account,
you have for sure y amount ofdollars that you have in this
account and you have z amount ofmoney over in this account and
they're all working in adifferent bucket and a different
vertical how you want to, so theentire portfolio is strong cuz
you're diversifying, you have aplan.
I think most people just, theycan't figure out the plan that

(18:44):
they're not, it's not likethey're not intelligent enough
to figure out a plan.
They just, they're really unsureas to what the next step is.
They know they didn't want to goto the standard world.
I wanna be in this real estateworld, but I just don't know
what the best vehicle is.
So they just need to have bettereducation, uh, out there on, on
what to do.

Yeah.
The, the downside of, uh, of uh,a self-directed ra cuz a lot of
people say, oh, it's wonderful,you know, vanguard's charging
you a point and a half or twopoints or whatever it is.
Yeah.
Self-directed iris charging youmaybe all in eighth of a point
and this is wonderful, but it'sself-directed.
You've gotta tell them where toput it.
Yeah.
You have to make thosedecisions.
And I think even though peoplehear that, it doesn't quite sink

(19:24):
in until they realize that theirmoney's been sitting there for a
while.

They love the idea of it's control.
I control the investment, that'sawesome.
That's what I want to do.
But when it comes time to put,you know, ink to paper, the,
it's, uh, you freeze.
It's like getting, uh, what theycall it on your wedding day cold
feet.

Right, right, right.

You're getting cold feet with the investment
and it, and it's perfectlynatural to think that way
because this is the first timeyou've had a chance to have a
say so with your retirementmoney.

Right.
So, you know, to that degree wedidn't talk about, uh,
discussing this too much, and Iwon't go down this rabbit hole
too far, but exactly what youjust said is an advantage of
doing, um, an installment saletrust mm-hmm.
setting up onebecause you can sell off your
real estate or whatever, you canput it in a trust and you can
direct that trust to buy notes.

(20:13):
How about that?
Um, and especially if you'resort of helping a a person do
that, um, it works just like a10 31.
Uh, you're not your, your taxdeferred just like a 10 31.
But yeah, it's something forpeople to think about.

So Richard, the, the types of investments that we
purchase are performing loans ortraditionally first lien, right?
It's all secured by realproperty, whether it's land,
whether it's, uh, you know, ahome on, on real property as
well.
So they're typically owneroccupied.
We do do some known non-owneroccupied stuff, but the main

(20:51):
caveats we have is two sections.
We have newly originated loansmm-hmm.
and then we haveseasoned loans.
Right.
And so the definition of a newlyoriginated loan is a, is exactly
how it sounds.
It's a brand new loan that wasjust created, just went to the
title company and was justclosed on, ready to sell to

(21:13):
another note buyer, likeAmerican note buyers.

But they've had to have made, uh, at least
one payment on that.
Right.
Or, or else we're considered theoriginator.

So there are ways around that, and that would be,
you can buy it at the fundingtable, but you don't have to
collect the first payment.
You can make part of thepurchase agreement that the
person that sold it to youperson we bought it from just
collects the next payment or thenext two payments that come in.
And those payments are deductedfrom the sales price.

(21:44):
So they are actually collectingthe payments.
It's just we say, Hey look, inthe future we're gonna start on
month X.
Mm-hmm.

.
Okay.
So what do you see as theoffsets in terms of, uh, buying
a season note?
Let's say a note that's got twoyears of seasoning on it.
It's, it's a nice enough house,probably a, you know, whatever
degree asset, um, versussomething like that you just
mentioned that is, uh, maybe gotone payment and, and answer it

(22:14):
in the context of what, uh,different underwriters are
bringing to us.

So let's, let's back up a second and talk about
seasoned loan.
So, uh, the definition of aseasoned loan, just so that we
don't get off track too far, isjust a loan that has several
payments already made.
And so we look at it assomething that has a proof of
concept.
So Richard and I look at a loan,we say, okay, seasoning is
basically more than one payment,but we really say a seasoned

(22:42):
loan is really somebody that'spaid at least about seven to
eight payments and beyond.
And then we say, okay, that loanhas really been seasoned.
They've, they've gone through astretch of payments in a row
they've made before the next duedate.
And that that's a, that's aseasoned loan that we, that we
can look at.
A newly originated loanobviously is a brand new one.
So your, your question wasaround the newly originated
loans, like what's, what's theglitz and the glam about it?

Hey, what's the offset?
In other words, so you've gotone, you have nice seasoning,
you've got a payment history,you've got somebody who probably
has emotional, um, history, I'msorry, emotional, uh, ties to
that versus something wheresomebody's just basically
walking in the door.
Why, why would you do

That?
Yeah.
A lot of it has to do withcontrol.
Mm-hmm.
.
So in one aspect, I have a notethat's seasoned, a seasoned loan
that shows a good amount of payhistory and it shows the
propensity for the borrower torepay.
Okay.
That's a great attribute that wehold very high and high regard
when we're valuing a note.

(23:46):
The newly originated loan,what's attractive about it,
Richard is control.
Mm-hmm.
, what do I mean bythat?
So we help set up that deal thatwe are going to purchase.
And what we do is we know thatit's gonna be written on the
paper that we want it written onmean meaning, you know, a a
professionally, uh, writtenpromissory note and mortgage or

(24:08):
deed a trust, depending on whatstate you're in, there's gonna
be title insurance and a fulltitle underwriting from a, from
a title underwriting company.
Mm-hmm.
, it's gonna be aloan, a lender title policy as
well to ensure it's a first lienand they're, you're gonna see a
settlement statement that shows,you know, taxes are this,
they're being paid out of, youknow, down payment, here is all

(24:29):
the costs associated with it.
And then boom, everything'sclean and done.
The borrower is also beingunderwritten by a third party
underwriter.
That's just a guy that says,Hey, they got the ability to
repay.
Yes, they do.
They, they're not gonna be inany sort of trouble in the
future cuz this is a affordablepayment based on their current
income.

So, so we're meeting the CFPB guidelines
there.

Right, exactly.
Dot Frank and CFPB guidelines.
So in one hand, a newlyoriginated is control is is the
sexy appeal to it.
Mm-hmm.
and the seasonedloan.
It's, it's the, uh, propensityto repay.
So they both have very strongattributes to them and we weigh
them differently based ondifferent things.
But that's, that's the new sexyRichard is the newly originated

(25:10):
loan and as long as they'recompliant and done with our
requirement specs, it's a, it'sa really nice, uh, deal for us.

So is there any difference in asset quality?

There can be.
Typically the newly originatedloan is gonna be probably a
rehabbed home, which meansthey've got, you know, updated
mechanicals.
They usually got, you know,pretty a newer roof.
They usually got the insideelements of the house, you know,
cleaned up of whether it's newdrywall or new kitchen or stuff

(25:41):
like that.
It's, it's typ it's typicallylike that.
So the home is more sound amm-hmm.
more seasonedloan.
It, it may have been a whilesince the house have had had
some T L C in it.

Right.
So is it fair to say also thatfor someone to sell an
unseasoned loan, that they'renot going to get quite the
pricing that they would on aseasoning seasoned alone and
therefore our spread's gonna bea little bit, bit different too,
right.
A little bit better.

Yeah.
The pr, the pricing does weighinto that.
And there are numerous factorsas you know, Richard, about
valuing a note and what it'sworth and what we're willing to
pay for it.
So by definition, a newlyoriginated loan will have a
larger, um, uh, discount as wecall it when we pay for it,

(26:35):
meaning you used it, here arethe terms like cents on the
dollar.
They'll usually be a range oflike, let's say a grade, a paper
that we would find, which is areally well-written paper with
high quality attributes to it.
You know, it could be, you know,in between the 85 to 95 cents on
the dollar to pay for it.
Meaning, we'll, we'll pay thatmuch of the unpaid balance and

(26:58):
perhaps a newly originated loan,it, we see a little bit more
risk to it and maybe it's justgonna be less, less than that.
So by definition, a newlyoriginated loan will, we will
get a better deal on it, butwe're also assuming a little bit
more risk because we haven'tseen the propensity to repay
even though we have everythingelse laid out.

All right.
So we're, we're making money byjust letting it, uh, season

Yes.

By just letting time pass and, uh, see
as the flowers grow, right?

Yeah.
So the, the most interest perpayment the borrower will ever
pay is obviously the firstpayment that they make.
Right.
The least amount of interest aborrower will ever pay on a
payment is the last payment thatthey will make.

That's true.

Right.
So owning the note in thebeginning of its life is very
advantageous for a lenderbecause there's a ton of
interest, which is why bankswill sometimes either sell a
loan quickly or they may hold itfor the first year or two and
then sell a loan to someone elsebecause they're basically,
they're, they're, they'recapturing all the interest they

(28:06):
can from the loan and the unpaidbalance.
Moose very, very, very slowly inthe first, you know, few months,
few years of the life of theloan.

So you think the banks thought about that
when they created amortizationtest schedules

Eighth Wonder of the World, right?
They

Did.
I think so.

Compounding interest.

I think so.
That's

Right.
And amateurization.
That's right.
That's, that's what they do.

Well, that is always all very interesting.
I I, I, uh, like it every time Ihear it in terms of explaining
that, um, I mean there's a lotof different ways for people to
make money and, and certainly tomake it legally, but also to
make it smartly.
And I tend to think that a lotof people who are investing in
notes with correct underwritingand things like that are

(28:50):
investing smartly bydiversifying their portfolio.
And I'm just, I always wannaemphasize that I'm just talking
about diversifying.
Nobody should put a hundredpercent of the notes or, or
portfolio into notes or mortgageor, you know, real estate or
anything else.

Right.
Exactly.
All right.
That is all the time that wehave for today, Richard, thanks
for being on the podcast againtoday and, uh, sh shepherding me
through this, uh, this funlittle topic with season notes
and originating new so

That by the next time we open it up, you're
gonna be able to gimme theoutcome and a blow by blow or
the, the, uh, red Sox game.

Well, the game isn't until April.
So depending on when thisepisode's recorded and the next
one's recorded, it may beanother episode until you find
out the answer.
But yes, you'll know.

Okay.
Alright.
All

Right.
All right everybody, we'll seeyou in the next episode.
This is brought to you byAmerican No Buyers.

Speaker 4 (29:41):
Okay, bye-bye.

Narrator (29:46):
Thanks for listening to Be the Bank.
We hope you learned somethingfrom today's show.
If you enjoyed this episode,please rate and review us.
Plus check out our channel onYouTube and follow us on
Facebook and Twitter at Be TheBank and on Instagram at Be the
Bank Podcast, be The Bank issponsored by American Note
Buyers.
Thanks again for listening.

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