What You Missed August 2015 General Meeting
by Rob Earhart

Investing in Notes

Presented by: Donna Bauer, “The Original Note Buyer”

August 4, 2015

I’ll teach you the fastest and easiest way to close a note and you don’t have to put your own cash at risk.

My nephew asked me for one of my books and did his first deal for $7500. At age 17, Gavin made $4,500 with a note he won.

There are several ways to use notes. Do you want income, want a retirement program, etc.? There are several ways to use notes to get what you want. How many want to build wealth with high returns? How many want to acquire properties?

“Should I start with performing notes or non-performing notes?” You buy the non-performing note to get the property or restructure it to get a higher income.

“I recommend that you start with a performing note, make it risk free and not have any of your own money in it,” recommended Donna. Once you see that it works you can branch out to non-performing notes.

“Why notes instead of the property?“ asked Donna. “You don’t have to manage tenants, do repairs, etc. I recommend you have half your assets in the properties and the other half in notes. I make a higher rate of return on my notes than my properties,” she continued.

When I started out, I had 4 kids and babysat 5 more for $1 per hour. The safest and easiest way to make quick cash is to flip a note. “Anytime you can get a good deal you can find someone to buy it for a profit,” she proclaimed.

The note is the promise to pay the debt. The mortgage is what provides the collateral that can be foreclosed on. I would not buy a note without a mortgage so I get a promise to pay.

Let’s say Sam has a house to sell but the banks will not loan enough on it. He can become the bank and carry back a second mortgage and get payments. On a $600,000 sale, he carries back $150,000 and receives payments on the note.

There is one exclusion to Dodd Frank: If the seller lived in the house and sells it with a carryback mortgage, it is excluded by law from Dodd Frank. Also Commercial loans are outside the purview of Dodd Frank. Dodd Frank applies to people who are making loans in their business, like wholesalers who loan or contractors who loan on mortgages.

Sam has security in the deed, has income that is spread out so the taxes are lower. But 4 years later, Sam wants to get out of the mortgage because he needs the money for other things. “Sam got a letter from Donna saying that I buy notes and mortgages.” He sells me the remaining balance of $443,000 and gets $375,000 in cash. He got $150,000 down, collected $92,000 in payments, and $375,000 from me so he has collected $601,000 and got a good deal.

I got a $443,000 house for $375,000 and earned $68,000 in one day. It was a great deal for me. If Bill refinances or sells it I collect my $68,000. I would be making 13.25 % on the note. The best way to make money is to flip the note.

I started out in the Cincinnati investors Group and found 3 investors who wanted to buy notes. I would sell them the notes.

I do a note purchase of agreement to buy the note for $375,000. All you have to do is find someone who would like to make a lower return. An 11% rate of return would net $410,000 to me and I would then make $35,000 without using any of my own money. This transaction takes about 15 hours and I do not have to deal with tenants.

Let’s say we sold the note to Irene. There are two ways to make money. One is a simultaneous closing. We just flipped a note so you can use a simultaneous close, even though you can’t do that on a real estate purchase. The title company gets $410,000 from Irene when you close first, then the title company closes on the purchase of the original note for $375,000 and you get the $35,000.

You could also assign the contract for Note but the buyer will know you are making $35,000, so you may not want to do that.

You can start out as “Donna dealer” and do a few deals for $10k or $15k and pretty soon you have enough to be the investor.

Phil made the largest profit of $395,700 on one deal. How did he do it? He found a larger mortgage and closed on it.

Safety of notes? Let’s say you have a $100,000 mortgage with $60,000 mortgage that you bought for $40,000 so, even if it goes to sheriff’s sale, you either get the money or the property and you still don’t lose.

Anytime you get a note paid off early, you make a higher rate of return.

The more equity you get, the safer the note. You just have to do your due diligence to make sure there is enough equity.

Now, lots of properties are over-financed. You can buy part of the note. You then get a lower loan to value.

I normally buy only first positon notes but non-performing second mortgages are a hot item now. Be aware that non-performing seconds are more risky.

I did a deal in Florida that gave me a 30% rate of return secured by a home and office. The highway department wanted to put a road thru and paid me off. I made 87% profit on a $10,000 investment.

When you make money on a note, buy another note, don’t put it in a bank to get 1%.

I teach how to create high returns with early payoff. I offer a one-year coaching program where you find the note and I’ll fund it and do all the paperwork and we’ll split the profit.

Everything I am telling you can be done in a self-directed IRA. Tax free, if it’s in a Roth. If you don’t need the money to live on you should do it in an IRA and make much higher returns.

I bought a note for $71,000 with 180 payments left for $46,000. Then I sold 100 payments for $50,000 and still had 80 payments left in the IRA. So I made $4,000 upfront for the 100 payments, and had $45,000 on the back end. You just write the contract for Note in the name of your IRA and the only cost is $100 in consideration.

Donna then went through a couple more deals showing how to make quick money by flipping notes.

Non-performing note strategies. These are normally bank notes. If you want to get a property cheap, negotiate to get the notes cheaply and get a deed in lieu of foreclosure. Then you get the house for pennies on the dollar.

If you want to make quick cash you can flip the non-performing note also. Then the investor gets the benefit of the note. If you want to make more money, restructure the deal with the owner and then sell it. You can also season it by getting 6 months of payments and turn it into a performing note.

If you want monthly cash flow, buy the note, restructure the note and get payments coming in. They get to stay in the house and you get income. Donna showed how to restructure a deal, sell some of the payments and keep the balance.

The best way to make money is to get as much as you can upfront and hold the balance for the backend income.

Where do you find the seller-financed notes? Craigslist, REIA groups, word of mouth and networking. I send out letters requesting any notes for sale.

For non-performing notes you can call small community banks, buy from hedge funds, or buy from resellers, but be careful that you don’t overpay.

Donna then talked about her first note deal and explained about her system. Her book is about 400 pages but it is like an encyclopedia that you can look up how to do any part of the system that you want to concentrate on. It comes with the audio version so you can listen in your car. Some of the bonuses are the online references and training. There are 4 videos online for the non-performing notes. “I tried to make it easy so the numbers don’t scare anyone,” exclaimed Donna. “You also get one year of coaching and I prepare all the documents and show you how to structure a deal. You also get my investors for your funding.”

“The value of a note is created when you create the note,” advised Donna, as a parting phrase.