buying real estate notes: the ultimate investment cash flow

Profiting from America’s biggest Note Opportunities

BUYING REAL ESTATE NOTES The Ultimate Investment Cash Flow

Death of REO’s

3 Core Things• Unprecedented

Market Conditions• Understanding The

Discount Note Industry

• Outsourcing the work!

STOCK MARKETYOUR MONEY

(ANXIOUS MONEY)

Where is it going?

XMarket Crash 2008

Source: NAR National Address

2013

5 Years

Only 4½ Million Sold

2008 2013

Sources: Reuters and ZeroHedge, Bloomberg 2013

Where is all the Inventory?Blackstone 45,000 SFH Carrington 25,000 SFHColony America 9,931 SFHSilver 5,000 SFHTricon Capital 4,000 SFH CA, FL, AZ

3,600 SFH AZ, house in last 5 yearsIL, CA, IN, NC, GA, FL

PLUS Billions more raised to buy SFH foreclosures and

REO’s

800,000 in the last 5 yrs

Who Are We?

© Copyright CFG, LLC 2014. All Rights Reserved.

© Copyright CFG, LLC 2014. All Rights Reserved.

What’s a Note?

1,000

Eddie SpeedP.O. Box 1234South Lake, TX

John Eddie signs a note for $1,000

John Doe 1,000

Sells the Note

John receives

$850

Check Cashing biz

receives $1,000

at a discount

Buyer

Ownership Deed

Seller

Mortgage NOTE

Mortgage Lender

WHY NOTES?The Surge of Growth Ahead!

NOTES

STOCK MARKETX

Mortgage LenderColonial

Toxic Assets

Market Crash 2008

With relatively little fanfare, the stock market has become expensive again.While the rest of economy has been growing frustratingly slowly for almost five years, stocks have been rising at a boomlike clip. An investment in the Standard & Poor 500-stock index would have doubled from early 2009 through early 2013 and then gained an additional 18 percent over the last year.Relative to long-term corporate earnings – and more in a minute on why that measure is important – stocks have been more expensive only three times over the past century than they are today, according to data from Robert Shiller, a Nobel laureate in economics. Those other three periods are not exactly reassuring, either: the 1920s, the late 1990s and in the prelude to the 2007 financial crisis.Wall Street, of course, can always come up with justifications for high stock prices. Remember: The Internet changes everything. Or: The business cycle has been repealed. Some of the current justifications even have a ring of reality to them.

Time to Worry About Stock Market BubblesMAY 6, 2014

Nobel Laureate in Economics: Stocks have been more expensive only three time in the

last century: the 1920’s, the late 1990’s and in the prelude to the 2007 financial crisis

Realtytrac, Bloomberg, Wall Street analysts and Bernanke projected waves of foreclosures starting in 2012 but it never happened:

1. Short sales2. Selling non-performing

loans

Short Sales Completed, REO Inventories & Primary Market Delinquent Notes

2008 2009 2010 2012 2014 50,000.00

1,050,000.00

2,050,000.00

3,050,000.00

4,050,000.00

5,050,000.00

NPLREOShort Sales

Source: Compiled information from Lawler, Calculated Risk, Realtytrac, Corelogic, Black Knight Financial Services

MAJOR SHIFT FROM REO TO SELLING NOTES

REO’s NOTESREO’sNOTES

What it Takes to Buy Notes

0

2

4

6

8

10

12

Knowledge

Minimum Standard

Leveraging Colonial’s Resources is KEY!

Interest Time

Two Types of Discounted Notes

Non-Performin

g Notes

Performing

Notes Seller FinancedRe-performing

Non-Performing

What Determines Note’s Value?

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Performing Notes

Re-Performing Note Cost 70% plus

Defaulted Note Cost 20%-50%

Non-Performing Notes

Paths to Property

This house represents all the houses in the United States that are on the REO housing market.APPROXIMATELY 400,000

For every REO, there are 25 notes in some stage of default behind the scenes.

REO’s vs. Notes

REO's vs. NOTES

400,000 REOs9 Million

Delinquent Real Estate Notes

Inventory of Opportunity

Buyer

Defaulted Note?Modify LoanDeed In Lieu

Foreclose

Buyer Stops Paying!

Non-Performing Loans

Non-Performing Notes

Modify Deed in Lieu Foreclosure

40% 40% 20%

©NoteSchool 2013

Non-Performing Notes

REO Property

Modify Deed in Lieu

Foreclosure

Re-Performing Note

Owner Finance or Cash or Rental

Non-Performing Note Case Study

Case Study

Property: Stone

Mountain, GACurrent Market Value:

$100,000FTC DISCLAIMER: While these case studies are REAL DEALS that my

students have closed recently, these results are NOT typical. As with all courses, you should not expect to make this much money or any money

with “how-to” advice.

Non-Performing Notes

REO Property

Foreclosure

Note or Cash or Rental

Modify Deed in Lieu

Own Note Without Having to Manage ItLoan Servicer

• Collects Pmts • Taxes / Insurance• Borrower Work-out • Foreclosure Mgt

Note Owner

Work done by Who??

Outsource!!

• 4/2, 1,800 sf • Rent $1,250/mo

“I didn’t need a calculator to pull the trigger on this one!”

Total Cost approx $30,000 Property worth $100,000…with creative financing

Waterfall

BUYERS BUY HOUSE

SIGN NOTE & MAKES PAYMENTS

PAYMENTS TO THE BANK

Successful Loan!

BUYER PAYS OFF MORTGAGE

IfNotpaid

PAYMENT DEFAULT

IfNotpaid

PAYMENT DEFAULT

BANK BUNDLES BAD MORTGAGES

Mortgage Information

HEDGE FUNDS CREATE TAPES

Mortgage Information

TAPES SENT TO INVESTORS

Agreed Upon Price

INVESTOR DUE DILIGENCE

SIGN CONTRACT WITH HEDGE FUND

New note owner

HEDGE FUNDS CREATE TAPES

New note ownerRe-Performing

Loan!

MODIFICATION = CASH FLOW

New note

owner

4 EXIT & PROFIT STRATEGIES

Seller Financing

“Performing Notes”

REAL ESTATE

Esta

blish

As-

IS V

alue

What % ?

Investment to Value Ratio = 50%

Investment to Value Ratio = 20%

Non-Performing Notes

REONon-Performing Loans 80%-90% of

Value

30%-50% of Value

Where do you make

More Money

with Less Risk?

Buyer

Mortgage NOTE

Mortgage Lender

Mortgage NOTEMortgage

NOTEMortgage

NOTE

Colonial

Mortgage NOTE

Colonial

Mortgage NOTE

Passive Investor Active

Investor

Hold In-House

STOCK MARKETX

Mortgage NOTE

One Note Many

Notes

More than just income today…Tax Free Income For Life

Performing Notes

Non-Performing NotesFormula for zero taxes in retirement:Notes + Roth IRA/401K = Tax Free Income for Life

Esta

blish

As-

IS V

alue

Price Note

Cost of Note

What % ?Investment

to Value Ratio

What Determines Note’s Value?

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Good Payment Record

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Bad Payment Record

Re-Performing Note Cost 70% plus

Defaulted Note Cost 20% - 50%

Performing Notes

Non-Performing Notes

Esta

blish

As-

IS V

alue

Price Note

Cost of Note

What % ?Investment

to Value Ratio

What it Takes to Buy

Series10

2

4

6

8

10

12

Minimum Standard

Knowledge Interest Time

Performing Notes

Owning Notes

Re-Performing Notes

Seller Financed

Notes

Learn to Be Your Own

Bank

Performing Note Case Study

Individual Notes

PERFORMING NOTECASE STUDY

Case StudyOwner Occupied

FTC DISCLAIMER: While these case studies are REAL DEALS that my students have closed recently, these results are NOT typical. As with all courses, you should not expect to make this much money or any

money with “how-to” advice.

Property:

Hallowell, KSCurrent Market Value:

$56,000

$34,616

158 Monthly Payments

Mortgage Note

at 9% interest

Monthly Payments of:

$374.69

You Pay

$31,233For This Note

$375

$375

$375

$375

$375

$375

Mortgage Note

$34,616.49 At 9% Interest

Pmt / $375 158 Mos Remain

$375

JAN FEB

$375

MAR APR MAY JUNE

$375

$375

$375

JULY AUG SEP OCT NOV

$59,250

158 Times!

11% Return

You Pay

$31,233

Valu

e $

56,0

00

Cost of Note Invest - $31,233

62% of Value Investment to Value ratio

Own Note Without Having to Manage It

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

Loan Servicer • Collects Pmts •Taxes / Insurance• Licensed & Compliant• Borrower Work-out

Work done by Who??

Outsource!!271 Months

Term of Note

Loan Servicer Monthly Pmts

Note Owner

one time fee = $150

*Industry average is around $25

Pmt.

Pmt.Pmt.Pmt.Pmt.Pmt.

Pmt.

JAN FEB

Pmt.

MAR APR MAY JUNE

Pmt.

Pmt.

Pmt.JULY AUG SEP OCT NOV

Payment minus Servicing fee*

Cash Flow with Real Estate Notes

Mortgage NOTE

YOUMortgage

NOTEMortgage

NOTEMortgage

NOTEMortgage

NOTEMortgage

NOTEMortgage

NOTE

10 notes x $600/ea = $6,000/month

BE THE BANK

How to Retire Tax Free Forever

TAX FREE!

AFTERTAX

$110

,000

Sal

eTerms of Sale

$110K Sales Price - $10K Down Pmt - $100K Seller 1st

LienDown Payment

= $10,000

1st lien Note= $100,000

Buyer’s Equity

Buyer’s Debt

$100,000

360 Monthly Payments

Mortgage Note

at 10% interest

Monthly Payments of:

$878

You Pay

$70,000For This Note

$878

$878

$878

$878

$878

$878

Mortgage Note

$100,000 @ 10% Interest

Pmt / $878 360 Mos Remain

$878

JAN FEB

$878

MAR APR MAY JUNE

$878

$878

$878

JULY AUG SEP OCT NOV

$316,080

360 Times!

14.8% Return

You Pay

$70,000

100,000 @ 10% Pmt / $878 30 year term

Loan Amortized

Jan 2014 Dec 2044

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

360 pmts

TIMELINEInvested with Self Directed IRA = $70,000

Yield = 14.8% annually

$70,000

360 Monthly Payments

Hard Money Loan

Monthly Payments of:

$878

What is the interest rate

for this Note?

14.8%

Pmt / $878 30 year term

Terms of Loan

Jan 2014 Dec 2044

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

360 pmts

TIMELINEInterest Rate = 14.8%

$70,000

Partials are Like Pizza Pies

$6

Partials are Like Pizza Pies

$2

$2 $2

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

360 pmts

Note Term Bought or Sold

Buy 30 yrs

Sell …

100,000 @ 10% Pmt / $878 30 year term

Loan Amortized

Jan 2014 Dec 2044

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

360 pmts

Roth Buys Entire Note for $70,000

$30,000

Note bought at discount

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

$Pmt

Most Valuable Portion Least Valuable Portion

360 pmts

Negotiate to Buy Entire Note $70,000

1st half 2nd half

100,000 @ 10% Pmt / $878 30 year term

Loan Amortized

Jan 2014 Dec 2044

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

360 pmts

TIMELINERoth Sells Front Endto Investor

Own Back-endin Roth Acct

Roth Buys Entire Term

100,000 @ 10% Pmt / $878 30 year term Loan Amortized

Jan 2014 Dec 2044

$878

$878

$878

$878

$878

$878

$69,900

11 yrs 19 yrs

$100

30 Years $70,000

Yield = 10% Yield = Enough!!!

$878

$878$878

$878$878

TIMELINE100,000 @ 10% Pmt / $878 30 year term

Loan Amortized

Jan 2014 Dec 2044

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

$878

360 pmts

Roth Sells Front Endto Investor

Own Back-endin Roth AcctRoth Buys Entire

Term

Sell Partial & Own Back-End of Note

$69,900

$878

$878

$878

$878

$878

$878

132 PmtsSold to Investor

TIMELINE

$100 in Roth Acct$8

78$8

78$8

78$8

78$8

78$878

You Keep Remaining 228

Pmts

100,000 @ 10% Pmt / $878 30 year term

10% Return HUGE Return

THE NEXT STEP

Buy Notes, Be The Bank

2 Advanced

Note Classes

Big MoneyFrom bad debts

Tuition $2,000

3-Day Live Class

Family or Biz Partner FREE

You’ll learn how to . . . • How to get Note Sellers• Work-out Strategies• Government Funds Avaialble• Property analysis & determining the value• Different types of Defaulted Notes• Lien positions and title reports

Big MoneyFrom bad debts

On-Demand Training Course

14 Modules (3 days worth of training)

Learn easily At your own paceNon-Performing

Notes

3-day Live Class

Case Studies of Authentic Deals

Rich Rewardstm

In Real Estate Notes

You’ll learn how to . . . • Marketing To Attract More Clients• Create Alternative Cash Flows• Negotiations To Close More Deals• Steer Clear of Legal Issues• Math To Pocket More Profits• How Partials Work• Much More

Rich Rewardstm

In Real Estate Notes

On-Demand Training Course

Learn easily at your own pace

12 Modules (3 days worth of training)

Performing Notes

Each class has 12 + Events Annually

• Arlington, TX: Oct 3rd – 5th

• Charlotte, NC: Nov 14th – 16th

• Atlanta, GA: Dec 12th – 14th

• Ft Lauderdale, FL: Oct 10th – 12th

• Irving, TX: Nov 21st – 23rd • Los Angeles, CA: Dec 5th –

7th

Both Classes Combined for

$1,297

Either Class: $797

Gold in NotesOne-Day Workshop

Saturday Oct 11th Time: 9am – 4pm

• Members:– FREE . . . Must call Robyn– spouse $ …

• Non-Members: – $49 early bird– $79

Presented by: Joe Varnadore

Financial Deal Architect• Case Studies (from actual deals)• Building Cash Flows• Sourcing Capital• Creative Finance

Your IRA Buying Performing Notes • Building retirement acct as your own

mini-bank• Phenomenal leveraging techniques with

notes