Secured Income For Life with Note Investing

1
Secured Income For Life with Note Investing
www.TheNoteGuys.com

• Ellis San Jose
• Ellis_at_thenoteguys.com
• Gerald Lemoine
• GL_at_thenoteguys.com
• Office [phone]

2
Agenda

• Who we are What to expect tonight
• Why notes? Goals Strategies
• What are notes?
• How we buy evaluate notes
• Typical yields
• Managing notes
• Pitfalls
• Exit strategies Case Studies

3
Ellis San Jose Investing Work Experience

• Influences Father Mother Retired Navy and
  Housekeeper to Real Estate Investors
• Courthouse Steps Managing rental property
• My First Solo Investment
• Bud Fox vs. My Dad Wall St. is calling
• Bruce Norris wake up call
• Full-time leap of faith
• Notes The Beginning

4

• Gerald Lemoine
• Influences - my father - entrepreneur
• Work Experience
• Project Manager General Contractor
• Steamboat Springs, CO - land development
• California Foreclosures
• How I got started in Notes
• Ward Hanigan reunion
• Buying REOs from lenders

5

• What We Specialize In.
• 1st Position and Juniors
• Deeply Discounted Notes
• Non- Performing
• Re-performing
• BK 13
• We Fix Damaged Goods and Improve Value
• Think of Us as Note Rehabbers

6

• How We Do Business?
• Happy Happy Notes
• - Happy if they pay
• - Happy if they dont
• Happy Happy Borrowers Investors
• We have flexibility to modify payments, loan
  balances
• We are the lending committee

7

• What Are Notes?

• Note
• a contract for a payment or series of payments.
• Categories
• Unsecured- no collateral attached
• Secured (cars, land, equipment, house)

8
What is a Trust Deed/Mortgage?

• Backed by collateral (Real Property)
• Secured Investment
• Recorded document on the public record
• When you buy a Trust Deed
• YOU ARE THE BANK
• The security for the note (contract)

9
Terminology

• Amortization Portion of the principal paid
• with each payment
• Term How many payments
• Face value Original loan amount
• Rate Contracted interest rate
• BPO Brokers price opinion of value
• ITV Investment to value
• UPB Unpaid balance

10

• Terminology
• Discount Percentage under face amount
• Yield Annual rate of return of investment
  expressed in
• Performing Paying as agreed
• Non-performing Not paying at all
• Re-performing Re-establishing payments
• Priority Determines order of payment in
• liquidation (1st, 2nd, 3rd)

11
(No Transcript)
12
(No Transcript)
13

• Two Common Questions
• Why would banks sell?
• Clear portfolio of poor or non-performing notes
• Raise capital
• Why would Note Funds sell?
• Buy pools of 100 million or more
• Primary model is to liquidate property
• Not interested in long term hold
• Sell to investor is last choice

14

• How to evaluate notes?
• Purpose for buying
• Buy and Hold for Yield
• Rehab and Flip
• Broker to other investors

15

• How to evaluate notes?
• Types of notes
• Price range - inexpensive to expensive
• Penny Stocks to Blue Chip - quality
• Nationwide vs. Local - location
• Borrowers ability to pay?
• Performing or Non-performing
• Vacant or occupied
• Chapter 13 BK 

16
Lafayette, LA
17
Redding, CA
18

• How to evaluate notes?
• Primary model
• Owner occupied, source of income, desire to stay
• This results in a lower risk investment
• Buy multiple notes in low to medium price range
• BK 13 payment deducted from paycheck
• Performing or non-performing
• Loan modification to help borrower make payments 

19

• How to purchase notes?
• Due Diligence
• Value Zillow, Dataquick, Epraisal, Google
• Best indication of value Local Realtor
• Title search
• Taxes could be 10,000 plus
• Building Dept Code violations
• Assessor web site additions, remodels

20

• How to purchase notes?
• Calculating offer price

21

• Provide Cash Flow Increase Net Worth
• Note Portfolio
• Case Study
• Long term Investment
• Risk
• Investing in IRA/HSA

22
Managing Re-performing Notes An Example Portfolio
23

• Provide Cash Flow Increase Net Worth
• Case Studies
• Fix Flip - Ontario, CA
• Seller Financing - West Newton, PA
• Cash Flow Crutcher /Dayton, OH

24
Ontario, CA Sold July 2009

• Note Purchase 155,000
• Repairs 25,000
• Sold 218,000
• Net profit 24,000
• Total time 77 days

25
West Newton, PASold Aug. 2010

• Purchased in August 2009 19,000
• Cost of rehab, etc. 8,000
• Total invested 27,000
• Received Payments ( 4,000)
• Net Investment 23,000
•  
• Sold with Seller financing 43,000
• Down payment 5,000
• Total financed 38,000
•  
• Payments are 450/mo for 125 months
• _at_ 8 interest rate
• Resulting Yield 24.93

26
Dayton, OH

• Note Purchase 16,500
• UPB 50,043
• Monthly pmnt 516
• Maturity date 10/2036
• Yield 37
• Performing by Nov. 10

27

• How to provide CF increase NW?
• Long-term Investment
• As underlying asset appreciates value of note
  increases.
• Note balance is decreasing due to amortization.
• Investor capital returned in 50 months with
  payment at 1,500/mo.
• See following chart showing appreciation,
  reduction of note balance (UPB) and return of
  capital.

28
(No Transcript)
29

• Provide Cash Flow and Increase Net Worth
• Manage Risk
• Basket of notes like mutual fund
• Individual notes one goes bad, may take
  months/years to recover investment
• Investor risk tolerance - buying singles or
  partials?
• Investor skill level manage notes?

30

• Pitfalls
• Owner may use BK as a delaying tactic
• Under estimate repairs
• Over estimate value
• Forensic loan audit

31

• Whats the Market Opportunity?
• Why Now?
• Volume of institutional re-performing paper is
  ENORMOUS
• Choice of notes Hi Equity vs Low Equity, Low
  price vs Higher
• Expected Yield, Various ways to generate yield
• Not just yield BIG payday down the road
• Advantages of investing in IRAs
• Supercharge your portfolio with Partial Note
  Sales (Leverage)
• Long Term Investing in Institutional Re-
• Performing Paper Positive Cash Flow!