how to explode your wealth using
promissory notes you just need a small
amount of money and you can build
enormous wealth that's what we're gonna
talk about on today's show
[Music]
here we are our very first rental
property hey everyone I'm Clayton I'm
Natalie and this is a show where we help
you build financial intelligence so you
can build financial freedom now we we
buy and hold real estate that's what we
mostly talk about here on the channel we
teach you how to start your own business
buy real estate and ultimately get out
of the rat race lead of your
nine-to-five job but a lot of you you
know if you're in your 30s 40s you might
not have a ton of money just yet but you
might have five ten fifteen thousand
dollars in savings and this is the
perfect video for you right right
because you could invest in a promissory
note and that means now you have a
performing asset whereas before you had
let's say ten thousand dollars not
performing you could lend it to someone
for something for some reason that you
like and now you have that $10,000
actually performing right so let's talk
about the mechanics of a promissory note
why you might do it why maybe you
wouldn't do it and then how you do it
more specifically alright so and by the
way we should mention that we have
there's a link below this video so you
can download a promissory note it's very
easy to follow you don't need to hire an
expensive law firm we use a company
called e-forms calm really easy but we
have a link below right to their
promissory note so it's so simple you
can download and customize it for
yourself okay so let's talk about what
goes into a promissory note okay so it
doesn't have to be that formal although
the more formal the better right because
if in the occasion you need to collect
on it you need to show hey this was a
legit thing I wouldn't do it on a napkin
or a dress nobody can but the point is
you can you can get a lot of great
contracts that have been written on the
back I wouldn't do that so let's do it
the right way
download the template use that instead
but it's basically a document that says
that I Natalie promise to pay you back
Clayton for this amount of money and it
sets out the terms so let's pretend that
I want to buy a car for $10,000 but I
would have $10,000 and I don't want to
go to the bank
and get a loan for $10,000 I instead go
to you let's pretend you're my uncle
okay right uncle Clayton that would be
weird
okay so I say to you uncle Clayton can I
borrow $10,000 for my car now I am your
star pupil niece you believe that I am
responsible I have a good job at the ice
cream shop and you know that I am going
to pay you back so your $10,000 could be
sitting there doing nothing or it could
be lent to your niece Natalie super
responsible who will pay you back let's
say five years interest rate let's give
me the family rate at 3% okay okay so
we're gonna do five years at 3% now so
this money that was sitting in my
account was doing nothing remember we
always have you got to check out our
video where you talk about say savers
are losers right if you're a saver
you're a loser unless you do it smart
unless you're buying performing assets
so now I'm converting that savings to a
performing asset five five years 3% to
my niece yes okay so now I'm going to
take the template I'm going to write the
terms is that Natalie I'm gonna use my
maiden name because it's weird if we use
the same last thing although we're
pretending were related in it okay okay
let's say natali del conte is borrowing
$10,000 from Clayton Morris uncle
Clayton on this date right and the
payments will be this much per month
because it's an interest rate of this
much right and it starts on this day
right so you name the parties the
borrower and the lender you name the
amount of money how often the payments
were be you could say pay me once a year
right but that wouldn't be very
responsible to do that for a teenager
right I'm a teenager in this right she
works in an ice cream shop right I don't
know she's gonna be in a year so right
exactly so and you wouldn't want to say
okay teenage niece Natalie save up
$2,000 you don't know what my monetary
habits are you know I probably could
make the payments right but that's up to
you
who cares right and then you sign the
note both parties have to sign the note
for the note to be enforceable I can't
just make up a note sign it and be like
see
you owe me money doesn't work that way
so if you download the promissory note
example from a forms below you'll see
that look you can do this on your own
and if you want to go the extra step and
get it notarized you can write we've
definitely done a note where we've got
yellow rice but you don't have to no you
don't and there's usually no place on a
promissory note for a notary we've done
some notes where I went ahead and and
added that later like because a notary
should not notarize a document that
doesn't have a notarized spot and so you
have to add that in for instance we
tried to get our passports notarized and
they can't just like notarize a paper
copy of it you have to write like name
notary name notary expert so friends if
you're gonna do that you have to do it
properly okay so yeah and then voila you
can give me that ten thousand dollars
and I should start paying right so now
you have a performing asset and I have a
lender who I know and trust and love so
now it might not be your niece right so
you've got ten thousand dollars sitting
in that account and you we're not doing
anything with it you're just saving that
money start to think about how you could
do that to some other investors who want
to use that money there are so many
people so many people who watch this
channel right now who would love to
borrow that ten thousand dollars from
you you might want to borrow it at 6% 7%
interest for five years that ten twenty
thirty thousand dollars could be a down
payment for them on a property so you
got to start thinking creatively about
this otherwise it's just sitting in your
account doing nothing and by the way
with that promissory note can be
collateralized what does that mean that
means that you can be offering that
promissory note to someone and guess
what if they don't pay it you they've
collateralized the the car or the house
alright so what if you don't pay me back
well there's a couple of options you
mentioned collateralizing the note right
you could take the car you also could
sell the debt to a third party because
sometimes debt collectors like to buy
non-performing notes because they think
that let's say the note is for $10,000
someone may buy it for $7,000 and then
be able to like really
flex their muscles and get back the
$10,000 a lot of businesses like to do
that right worse comes to worse you can
go to court and Sue for that and your
promissory note is your documentation
that that person actually owes you that
money
hopefully you wouldn't have to get that
far because it would cost you a lot in
legal fees and most likely if the
person's not paying you back it's
because they don't have it it's not
because they're being a jerk so really
think about who you're lending to what
they're gonna do with that money and
whether or not you have faith in the
investment in the person right and a
good thing about promissory notes often
with a person a person relationship is
that look it's a private deal so you
might have a five-year note with
somebody that they've structured you
might after a short amount of time be
able to go to that person and say look
for a less amount of money I owe you ten
thousand right over five years but what
if I paid you eight thousand right now
and we just call it done yeah and that
happens all the time you might think why
would they do that
because guess what to somebody a lump
sum payment is way more attractive than
waiting five years over the term so you
can't have these negotiations with a
private sale also we've done podcasts
with Susan Lassiter Lyons who wrote the
book getting the money she talks a lot
about finding private lenders in your
social sphere in order to do real estate
deals and she teaches you that if
something happens in your deal starts to
go south you should be the one to broach
the lender and say I need more time most
likely if you have a deal let's say I
lost my job and I don't think that I can
pay you back for this car right but you
are the lender and I come to you and I
say I need more time can we extend the
terms of the note for let's say six
years or seven years and most of the
time the lender is gonna say sure that
means I have this performing note for
longer same thing with the real estate
deal like okay you can't pay me right
now what you're not gonna hit that
balloon payment whatever you as the
borrower should be if you're an upfront
person able to say okay let's come to
the table and come and come up with some
kind of solution for sister
thinking smart about your money and
check out the other video but I was just
talking about called
being if you're a saver you are a loser
check out the video and we'll see you
next time here everyone on the channel