How to sell promissory note
Buying, Selling, Creating Promissory Notes. Use your own Equity
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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
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