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Converting debt to income
- 1. Converting Debt Income ALCHEMY OF BUYING MORTGAGE NOTES BY PAUL CMIL
- 2. DID JA Know ---- SOLD YOUR THE BANK MORTGAGE? WHY DID THEY DO THAT?
- 4. TIME VALUE OF MONEY IS A DOLLAR TODAY WORTH MORE THAN A DOLLAR TOMORROW?
- 5. In 4 yrs You pay $86,400 Sell part of the note for its value = $68, 353.13 What is the variable in the equation?
- 6. Lucky 7 Questions What am I offering? What problem do Notes solve? Why are Notes worth trying? Who am I? Who are my competitors? What are the objections? How to take action?
- 7. 1. What am I offering? I do to notes what does to Real Estate Donald Trump
- 8. 1. What am I offering? Access to Contacts/Consolidators Note Analysis No cost Mentoring (meeting 2nd Tuesday of the Month @ Wegmans) Warranty VOLUME VELOCITY
- 9. 1. What I am offering?– The Product Non-Performing Notes Performing Notes Homeowner NOT paying Homeowner paying (RE) Mortgage exceeds value of Longevity? the house Homeowner’s Credit 1st Lien or 2nd Lien notes 1st Lien – PITI 1st Lien has control 2nd Lien – Payment 2nd Lien lower cost Owner financed notes
- 10. 2. What problem do Notes solve? Need for steady income Small business owners IRA accounts Retirement income Notes work like an annuity
- 11. FMV = $32,000 PUR = $17,400 UPB = $84,100 PIT = $934.00 Employed at Family Dollar 3622 Mozelle Street C Area Memphis, TN
- 12. Making Mortgages Pay Old Mortgage Modified M PMT = $934 M PMT = $575 TAXES = $150 TAXES = $100 INSUR = $100 INSUR = $ 75 NET = $400; N=360 NET = $684; N=360 Invest = $17,400 Invest = $84,000 Nego = $ 1,000 Taxes = $ 1,200 Nasty Note becomes Pretty Paper
- 13. Making Mortgage Pay Net Monthly Payment = $400.00 Term = 360 Month Interest = 15% Net Present Value = $27,680.15 Actual Return = 26%
- 14. 3. Why are Notes worth Trying
- 15. 3. Why are Notes worth trying S ecured U nderstandable P erformance w/o your involvment E xtraordinary returns R epeatable C
- 16. 3. Why notes are worth trying S ecured U nderstandable P erformance w/o your involvment E xtraordinary returns R epeatable Add another P for Persistence Notes will pay for your SUPPER
- 17. 4. Who Am I? •W E S T P O I N T G R A D U A T E •M B A 2 ND T I E R B A L D W I N W A L L A C E •S P E N T T I M E I N T H E A R M Y A N D C O R P O R A T E F L I P S W H O L E S A L I N G R E M O D E L I N G S H O R T S A L E S N O T E S
- 18. 5. Who are my competitors BOND FUNDS GOVERNMENT TREASURY NOTES BANK CD NOT INVESTMENT ADVISORS NOT EQUITY INVESTORS NOT INSURANCE/ANNUITY PRODUCTS NOT REAL ESTATE INVESTORS
- 19. 6. Objections VOICE „EM
- 20. 6. Objections Pros Cons Secured by a Real Asset Good Return Easily Administered Monthly Payout Transferable
- 21. 6. Objections Pros Cons Secured by a Real Asset Because you haven’t Good Return done it before! Easily Administered A good plan Monthly Payout implemented today is better than a perfect plan Transferable implemented tomorrow - -- George Patton
- 22. 7. How to Take Action TAKE THE COOKIES “GOD” IS WATCHING THE BANKERS AND THE MORTGAGE ORIGINATORS
- 23. 7. How to Take Action Write a Check Buy a Note Buy a partial note Attend our Note sessions (2nd Tuesday at 7:00 PM Wegmans/Tilghman) All Action does not bring happiness but Happiness only comes from taking Action -- Benjamin Disraeli
Editor's Notes
- In medieval times, scientists believed they could change lead into gold. They called the process alchemy. If anyone ever does achieve the process, they aren’t going to tell you. But with notes, we can convert mortgage debt into income and that is the focus of what we are going to talk about today.
- Most homeowners don’t realize that most banks sell their mortgage. Even if you still get your statement from a Wells Fargo or a Bank of America, they are acting as servicing agents for the investors who hold the note. Normally, we think that banks sell mortgage notes because the homeowner is a sub-prime mortgage holder. Why do banks sell your note? Because it is highly profitable to them.
- I used an example here to show you where you monthly payment goes. During the first third of the 30 year term, the mortgage payment goes toward interest. Want to reduce your interest costs? Make payments early in the cycle. Get your amortization statement or make your own on line. Pay the principal due for the next month. Eliminated one month off the term of your loan.Bankls look at this chart differently. There is a big opportunity here. That opportunity is in the time value of money and the velocity of money. Let’s explain --
- Is a dollar worth more today than it is tomorrow? The denomination doesn’t change, but what it will buy changes. The government forces inflation on us because government is the main beneficiary. Inflation erodes your buying power.
- Let’s look at how the bank sees your mortgage. If I pay $86,400 and the bank sells it for less, the only variable is interest. The investor who gets the note is getting a higher interest rate than you are paying. The investor receives closer to 12% interest for those 4 years. Bond funds by these tranches – when a portion of a note is sold, its called a tranche.
- These are the seven questions that we will discuss today. What others do you have?
- You can’t go into your local branch office, speak to the branch manager and expect to get a note. Most notes are sold in bulk packages of $10M or above. Mini-bulks are $5M. I have contacts with consolidators who buy bulk packages and they want to sell them to investors. They will sell them one at a time.You can’t learn note analysis in a classroom theorizing on what might happen, you learn it hands-on when you have something at risk. The more experienced your mentor, the better advice you will get. In a year you will be the mentor. That’s why we offer mentoring sessions at Wegmans. There is a warranty on every note you buy through my sources. I will work with you to get the note performing if the homeowner fails to follow through. If you change your mind in the first year, I will buy the note back from you.My goal is to increase the volume of notes that I buy and the velocity that I turn the notes. There are buyers for performing notes
- Here is the product. There is plenty available estimates range in the trillions.
- Investing in notes solves the problem of a steady income and appeal to small business owners (like you) and those interested in boosting their retirement income. Importantly, they work like an annuity. You invest X dollars and you get Y dollars income over a term. At the end of the term the note is paid off.
- Example house to show how the process works. C area means that there are other houses in the area that are vacant, but not so many that the neighborhood would be considered blighted. A blighted area is a D and there are certain areas that it makes no sense to even look at for notes those are F areas. There are other programs that deal with blighted areas.
- Comparing the old mortgage that the homeowner was paying on with the modified mortgage. Do not want to originate a new mortgage, you want to modify the existing mortgage. Why? There are too many regulations about originating a mortgage. You are protected with the higher amount of the original mortgage.
- I established my criteria that I will not take a mortgage note that pays me less than 15%. It is based on a number of factors. But that is my base line. This note will return 26% which accounts for some expenses. May go higher if she pays a upfront fee. As a performing note that pays 15% to an investor the note is worth $31,634.46.
- Everybody has seen that demonstration where some guru goes through IDEAL, a pneumonic on why real estate is the ideal investment. Well for notes we use supercalifragilisticexpialidocious.
- Your note is secured by real property. You can easily understand how it works. Once it is setup, it works without your involvement. Above average returns. You can repeat the process as often as you have money.
- If you can be persistent in your approach to notes they can provide an above average income. One client of mine, we have a plan. They flip houses. For the next 7 houses they flip, they will send me a check for $5,000 to buy notes. They don’t need to give me any money over the $35,000. I will pay them $60 a month for 20 years for each $5,000 they send to me. Whenever their account accumulates $5,000, I will buy a note and send them $60 a month. In 20 years they will have an annual income of $60,000 that will last for almost 20 years if they make no further investments.
- I know the real estate investment business.
- My competitors are funds that take investment money under management. I don’t compete with investment advisors, stock market investors, insurance agents or other real estate investors. I encourage every investor to have some of their funds in equities and in physical real estate. Having a steady income let’s the investor be choosey about which investments they want to pursue.
- Let’s hear the ones you have.
- Here are the pros on why you would want to buy a note.
- There isn’t an objection to the process. It isn’t for everyone, but the main objection is that you haven't done it before. Anything new is scary and that is why I offer the support group on the second Tuesday of the month at Wegmans.
- Story about the lunch line in Catholic school.