secured income for life with note investing
DESCRIPTION
Secured Income For Life with Note Investing. www.TheNoteGuys.com. Ellis San Jose [email protected] Gerald Lemoine [email protected] Office: (310) 414-9757. Agenda. Who we are & What to expect tonight Why notes? Goals & Strategies What are notes? How we buy & evaluate notes - PowerPoint PPT PresentationTRANSCRIPT
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Secured Income For Life with Note Investing
Ellis San Jose [email protected]
Gerald Lemoine [email protected]
Office: (310) 414-9757
www.TheNoteGuys.com
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Agenda
Who we are & What to expect tonightWhy notes? Goals & StrategiesWhat are notes? How we buy & evaluate notes Typical yieldsManaging notesPitfallsExit strategies & Case Studies
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Ellis San Jose – Investing & Work Experience
Influences: Father & Mother: Retired Navy and Housekeeper to Real Estate Investors
Courthouse Steps: Managing rental propertyMy First Solo Investment“Bud Fox vs. My Dad” Wall St. is callingBruce Norris wake up callFull-time leap of faithNotes: The Beginning
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Gerald Lemoine Influences - my father - entrepreneurWork Experience
• Project Manager – General Contractor• Steamboat Springs, CO - land development • California Foreclosures
How I got started in Notes • Ward Hanigan reunion• Buying REO’s from lenders
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What We Specialize In….
1st Position and JuniorsDeeply Discounted Notes
• Non- Performing• Re-performing• BK 13
We Fix Damaged Goods and Improve ValueThink of Us as “Note Rehabbers”
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How We Do Business?
Happy Happy Notes- Happy if they pay - Happy if they don’t
Happy Happy Borrowers & InvestorsWe have flexibility to modify payments, loan balancesWe are the lending committee
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What Are Notes?
Note: •a contract for a payment or series of payments.
Categories: •Unsecured- no collateral attached•Secured (cars, land, equipment, house)
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What is a Trust Deed/Mortgage?
Backed by collateral (Real Property) Secured InvestmentRecorded document on the public recordWhen you buy a Trust Deed:
“YOU ARE THE BANK”The security for the note (contract)
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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
Terminology
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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…)
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Two Common QuestionsWhy 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
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How to evaluate notes?
Purpose for buying• Buy and Hold for Yield• Rehab and Flip• Broker to other investors
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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
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Lafayette, LA
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Redding, CA
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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
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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
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How to purchase notes? Calculating offer price
Low Equity High EquityProperty value 45000 105000Monthly payment 850 850
% Fair Market Value 62% 46%
Yearly payment 10200 10200Note offer 28000 48000Yield - cash on cash 36% 21%
Limiting factor Investment to value (ITV)
Yield
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Provide Cash Flow & Increase Net Worth
Note Portfolio Case Study Long term Investment Risk Investing in IRA/HSA
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Managing Re-performing Notes: An Example Portfolio
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Provide Cash Flow & Increase Net Worth
Case Studies• Fix & Flip - Ontario, CA• Seller Financing - West Newton, PA • Cash Flow – Crutcher /Dayton, OH
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Ontario, CA Sold July 2009
Note Purchase $155,000
Repairs $ 25,000
Sold $218,000
Net profit $ 24,000
Total time 77 days
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West Newton, PASold Aug. 2010
Purchased in August 2009 $19,000Cost of rehab, etc. $ 8,000Total invested $27,000Received Payments ($ 4,000)Net Investment $23,000 Sold with Seller financing $43,000Down payment $5,000Total financed $38,000 Payments are $450/mo for 125 months @ 8% interest rateResulting Yield 24.93%
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Dayton, OH
Note Purchase $ 16,500
UPB $ 50,043
Monthly pmnt $ 516
Maturity date 10/2036
Yield 37%
Performing by Nov. ‘10
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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.
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$0
$50
$100
$150
$200
$250
$300
1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101 106 111 116
Number of Months
10 Year Investment (in Thousands)AppreciationPurchase PriceUPB
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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?
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Pitfalls
Owner may use BK as a delaying tacticUnder estimate repairsOver estimate valueForensic loan audit
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What’s 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 IRA’s• Supercharge your portfolio with Partial Note Sales (Leverage)
Long Term Investing in Institutional Re-
Performing Paper = Positive Cash Flow!