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Transcript Below:
Announcer: World’s best real estate show on the radio this so I radio show- desire radio show here’s Robert Burke.
Robert: Welcome back everybody. I tell you what. That was the probably the most
fun segment that we’ve had since we started doing the show. I mean I love that. The Real Alliance. Those guys are real. You need to check that out. You can go to our website desire radio dot and keep in mind that by being a listener to the show you get really good discounts going through their programs. I mean sometimes it’s seventy, eighty percent of what they’re charging the normal person but you can see what a little knowledge can do and hopefully that something we provide with the show and the next person we have on the show, I’m excited to have on. He’s very knowledgeable in regards to owner financed mortgages. His name is Gene Powers. He’s with the Nationwide Secured Capital. Hey Gene are you there?
Gene: I’m here Robert.
Robert: Welcome to the show. You are in San Francisco right?
Gene: Yes, I work out of San Francisco most the time.
Robert: Well that’s good. So how’s business?
Gene: Business is great. I just sent money out, and documents out, we’re closing and working on right now so that’s always an exciting time.
Robert: Well I love having you on the show because you know a big part of what I did when I was real active in real estate was bought and sold a lot of mortgages and that’s basically what Nationwide Secured Capital does right?
Gene: It is. That’s what we do all day long. We buy and we pay cash for existing loans.
We help sellers of properties to get out of a loan and we make an investment. We put them in our own portfolio. We also sell them to some of the major funds and private investors we
work with closely.
Robert: Well if anybody has a note out there that they’re looking to sell, you guys are the guys to talk to.
You can go to Nationwide Secured Capital dot com.
You can just, you go basically online and put the information in, right?
You can get a sent back to quote.
Gene: We’ll give them an easier website. My note sale dot com.
Robert: Oh. Ok I’m sorry. That’s even better. Say that again, my note sale dot com.
Gene: mynotesale.com. All one word.
Robert: Well one of the things I wanted to talk about, one of the questions, well I should say this that what we talk about topics on the show are basically from remarks in comments that we get from people who listen to last week’s show, and they go on to the website. There’s a comments section. They can fill out a question or comment that they have. What we love to hear and I appreciate it. But one of the comments, several of the comments that we have received the last couple weeks is about notes, and creating, if somebody were to sell a property a lot of people, and I know my mom is a perfect example of this. She had a property was paid for, she’d been renting it out, she got tired of getting calls from people saying the toilet was stuffed up, you know the dishwasher was broken, that kind of stuff. So she ended up selling the property. She basically makes the same amount of money but she doesn’t have the problems that go with being a landlord. Nothing that’s wrong with that, but that’s just for her that was the way it worked. So she went out and sold the property to the renter that was living there and now she doesn’t have to worry about that. But what I want to talk about if you do that, and I know a lot of our listeners are wanting to do something like that. Let’s talk about the do’s and the don’ts of creating an owner financed mortgage. What you want to do to make it more sellable if you need the money and what you not want to do.
Gene: Yeah, and let’s talk about making it more valuable. Because you can create that note several different ways. We’ll always buy at discount even if the note is perfect as we
have to pay for our due diligence and costs in acquiring the note. If it pays off the day after we buy it well we don’t want to lose money. But, lower quality notes and long-term low interest rate notes have bigger discounts. There are many factors that go into the quality of the note. How we compute a discount and this determines the maximum investment amount that in them, that we’ll invest in them. So, this for my list here and preparing for your conversation, Four most important factors. I actually have a an example here I was going to throw out, the you know, do it the right way and do it the wrong way and the
difference in values.
Robert: Yeah please.
Gene: Example One A. A hundred thousand dollar house you have yourself a seller financing.
Three percent down, three thousand dollars, 30-year loan, four percent. That’s just like the bank might do for a FHA loan. And the payments are four hundred sixty three dollars nine cents a month. Well let’s also say the pair credit is 535. You’ve got lots of collections. You’ve got a pass foreclosure and bankruptcy. They’re both aged enough that we’re not worried about them immediately but the market value after six payments on that loan is going to be very low because we did everything wrong. The range is going to be between eighteen, twenty five thousand dollars for the whole loan in the marketplace. Most and most investors won’t even touch this loan. This same hundred thousand dollar house, if you sell it with seller financing, you get a 20 percent down payment, 20,000 cash down, 30-year loan, but you put a 10-year balloon on it and you charge 8 percentage interest rate, which is appropriate for seller financing.
Payments go up to 120 dollars a month so still very affordable to the buyer.
Payers credit is a 625, no bankruptcy or foreclosure, mortgage lates on credit. That loan after six payments is going to sell in the range 65,000 to 75,000 for the whole own loan.
And with the 20,000 down that you got at sale, the seller can realize 85 to 95 percent of the sale price for the house, even with the discount sale note.
Robert: Big, big difference.
Gene: Yeah so talking about the factors there, the four big factors are down payment. And the investors look at this, we investors look at this as skin in the game. How committed is a borrower to stay in this property. Zero down, which often happens in seller financing, hurts the value of the loan. It’s kind of like renting a house. You’re paying about the same as rent, you walk away at any time just like a rental house. For owner-occupied homes we recommend minimum 10 percent down. 20 percent is the preferred amount. And if the buyer doesn’t live in the property, uses it as a rental property, or a vacation home.
then you should get an additional 10 percent so 20 percent minimum, 30 percent preferred. On non-owner occupied rentals, vacation, second homes.
Robert: Let me ask you this. When it comes to down payment, I know that’s important in
the more money you can get down the more valuable the note is, naturally. If let’s say that you got somebody who you know, you want to get 20 percent down but somebody got 10 percent and you decide that you do a first for 80 percent and a second for 10 percent, does that help the value of your first lien note?
Gene: It does. You’re going get a better pricing on the first lien note and you could hang on to that, you know, that second noted and provided the borrower performs. You know you’re going to end up with more money in the end. So, yes, that’s a helpful way of doing it.
Robert: Well I’m glad you said that. Years ago when I was buying properties, I would sell a lot of my properties, owner financing them. Because back in the day it was hard to get financing to be honest with you. I didn’t really mind because I was buying the properties well below market so I would turn around and sell the property at market value and I would get 5 or 10 percent down and I would take back the difference, so that I’ve showed a 20 percent down or a 80 percent first lien. And I kept the seconds and down the road when I sold those firsts, I got a lot more for them and I kept the seconds and boy they added up. One day I sat down and I thought boy I got bunch of these seconds and they’re bringing in a lot of income.
Gene: Yea, you know again it you can’t, for example you can’t do a 20 percent second. That’s not going to help anything.
Robert: Okay. No I understand you got to get some money down.
Gene: Yeah. 10 percent, 10 percent is really where you should start.
Robert: Hey, Gene, it’s amazing to me. Other than your site, now give me your website again if somebody had a note that they’re interested in selling.
Gene: Mynotesale.com will take you right to the long one, Nationwide Secured Capital.
Robert: Okay alright.
Gene: Yes the other thing we might mention here is if somebody is looking at creating a note, on that page, that it takes you to, on the 5th paragraph I think it is, it says, are you, if you don’t have a note yet, you’re creating a note, you click here and get information.
Robert: Okay with me. Go to the website again and you can find that. We got to get out here. Gene, I appreciate it. Hey everybody thanks for being here. We’ll see you next week.
Announcer: Thanks for listening to Desire. The successive real estate radio program with Robert Burke. We would love to hear from you and share with you about how you can find that dream house, rental house or property that you can buy, fix up and sell for profit. Contact us anytime online, desire radio dot com and join us again next week at the same time for desire, the successive in real estate radio program with Robert Burke.
