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Add Promissory Note countersignature

[Music] if you have ever applied for a loan to purchase real estate vehicles or any other asset involving finances you have signed a promissory note if you own a house and you ever borrowed money against it the line of credit is a HELOC homeowners equity line of credit then you signed a promissory note and today we're going to talk about buying selling creating promissory notes buying real estate with promissory notes and this doing business of the investment in notes buy notes selling notes trading notes discounting notes and so that is a very big business and we buy and sell promissory notes now promissory notes all have a either a deed of trust or a mortgage and depending on which state you're in and if you're in Colorado then you will it's a deed of trust state and so the deed of trust is recorded at the courthouse for the beneficiary and so you've got the payer and the payee and the beneficiary now if the person that's paying the note does not pay the payments then you can request that the public trustees sell the property and usually the person paying the notes will either go get a new loan and pay you off or they will refinance the property or or do something but there's just millions and millions of notes out there and a note is nothing more than a promise to pay and so there are just millions of these liens against property and for most all liens there's usually a corresponding promissory note and even a judgment is a lien and a judgment can be bought and sold and traded and I go to meetings with real estate brokers that that's part of their business model is they sell judgments as well as promissory notes secured by mortgages or deeds of trust so the thing that I find very interesting are these promissory notes are sold and discounted and that's not a very hard concept to understand I mean you've got a promissory note that's a paying four or five or six percent and that's a seems like a pretty fair rate it's probably not a very good rate if you're financing the property banks and FHA and those lenders will finance property at a hundred percent loan to value are three percent or more and so they're the borrower has very little equity in that property and that can be a dangerous sign they might have the ability to pay but when things get rough and tough a lot of times if you have no equity in a property you just walk away and that can be a problem for private lenders and people that buy promissory notes and deeds of trust they require more loan to value in other words it's called protective equity or the margin of safety if you put in 3% that's just not much equity and people will walk but if you put in 10 or 15 or 20% or 30% then you're less likely to leave that equity and walk away from the property when things get rough and so protective equity is very important and also what's very important in promissory notes is the position you're in now what you don't want to do is be in second or third position now second position may not be bad second position is not very bad if you can cure the first so let's say that you are going to loan money on a piece of property and there's that's $300,000 property and there's 200,000 in front of you 200,000 in first position and let's say the person needs 25,000 or 50,000 and you're going to loan money against that property and we're talking about investment property and so you would figure up your protective equity which would be the outstanding balance of all the loans and add those up and see what the loan-to-value is and so the real critical thing there is that you need to have the ability to either get a new loan for two hundred thousand or pay that two hundred thousand off should the borrower decide to and not pay the loan and so that's why lenders are so cautious about the position they're in a bank and FHA and HUD and all these people will never go in second position it's always first position first position only other few to extreme circumstances if you have other collateral but usually people don't and so the position you're in becomes very critical and the loan to value is very important and there are other things that will determine the value of the note and that would be the payment history of the borrower the collateral the type of collateral its location its appeal to the market and so there's a lot of factors to look at when you're looking at a hard money loan or looking at buying a note or selling and you want to be sure that when you're buying a note that it's a good note you can sell it in the discount rate is usually more than the interest rate let's say that you've got a note that you want to sell and it's a 4% that's not a bad rate you can get that about anywhere but I'm an investor and I've got the money to invest and you need my money and my rate is 9 or 10% and so the time value of money would then be able to come into play and that's just a formula to figure out what a series of payments are worth at the discount rate of 10% and that's my yield and that's what I require and so it's not a very hard concept to understand and Bank Savings and Loan and all types of lenders they're very knowledgeable and notes and deeds of trust but the same process that they do if you create a note on your property then you go through the same process and so it's a good process and it's been around for years and years and you do the same thing that a bank does and so it's often just a pretty neat to know that the same thing that they do that we can do and we can create our own promissory notes and borrow our own equity as you would say let and what I mean by that is let's say that you've got a piece of property that's free and clear and you need some money you know you can do two or three things you could go to a hard money lender and get the loan pretty easily and there's probably about a fifty percent loan to value or you could go to a bank and you might get 70 or 80 percent loan to value and you have to do a lot of appraisals and fees and title policies and things like that that's going to cost you a bunch of money our since you've got that equity and you know you can make the payments you can create your own promissory note in deed of trust and so you've created in the note say for a hundred and fifty thousand let's say that is 70 percent loan to value and now you want to sell that note and you've stated an interest rate on there of 6% pretty good rate but now you're going to sell that note to get the cash but the investor wants 10 percent so you discount the note you get the cash but the thing about creating your own note is you have to make the payments or the person that lured loaned you the money would be able to foreclose against your property and a lot of times if you've got if you want to buy a piece of property and you want to trade your land for a piece of property most people don't want the land but they would look at taking the promissory note because they could also discount that note and sell it so promissory notes had play a big role in the financing in the marketplace and they're a very good way to do business now here's a brochure that my friend ed put out on Facebook it says hey can I just sell a portion of my mortgage can I just sell a portion of the mortgage I own or what does he mean by that that means you have financed a property for somebody and let's say you've had it for five years they're making payments and they're good payers and there's no problems with the payments and you need $50,000 what ed would do would come in and say okay you need $50,000 my discount rate is 12% and your payments are paying $800 a month so with the time value of money formula he would figure out at $800 a month at a discount rate of 12% what it would take how many months it would take to give you that $50,000 and so what it has done is made 12% on his money you have got the cash you have kept your promissory note Edie is getting an assignment of those payments for two or three years and in two or three years you the loan is paid off and your promissory note comes back to you and you start getting the payments again so that's a pretty neat process we buy sell and trade promissory notes if you got a promissory note we can take it to the marketplace and see what people will pay for it or we can use your promissory note to buy other properties are you can probably get a hard money loan against that promissory note depending on all the other factors that come into play the rate the term the yield the history of the borrower the history of the property the collateral that in a good position or bad position is it good property or bad property or there's no market for it so you look at all those things in the district discount rate could go up from there depending on several factors so I thought that was pretty good that it would put that out there and he's getting that is you have to be able to pay them or otherwise that promissory note is just like this little guy right here you're carrying a burden around and that's called the debt and you own that debt and you have to pay it or you would lose your property so when creating promissory notes and doing business in that fashion you have to be able to say that you can handle that debt there we buy notes plus hard money loans and another just note and here's a part of my equity marketing is that there's over 300 ways to buy sell and trade real estate and dealing with notes and creating notes is one way to do that and I think it's a very good business model and it works very well in a lot of instances so if you got a promissory note you want to sell or trade or do something with or you've got free and clear collateral and you need a hard money loan then my contact information is on the screen so thanks for watching the broadcast and if you didn't watch the broadcast well then thanks for watching the replay