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Specializing in seller financing, Dawn is a visionary real estate professional who gets families into (or out of) homes and investments in a way that empowers and enriches them, as well as the communities in which they live… with or without banks and regardless of market conditions. Dawn is the antidote to America’s addiction to Wall Street’s financial opium. She makes the powerful, non-bank, strategies usually reserved for sophisticated investors accessible to everyday people, making or saving them thousands and instilling hope as she illuminates hidden opportunities. As a seasoned note investor intimate with seller financing and the secondary market for private mortgage notes, she provides mission-critical expertise that is extremely rare in today’s marketplace. Sellers: know what your note will be worth before you create it. "Landlord Liberation", "Buyers: The Seller is Your Bank" and "Note Investing for Newbies" are key gateway books for those wishing to engage with The Realm. Visit www.NoteQueen.com.
What you would do, in essence, how you create the commission without, unless you want to create like an actual listing agreement, and in the early days, I did create that for myself in California and go, This is dumb. There's no listing agreement for notes. So I created my own. Usually what happens, and you probably know this already, but like if you get saying, Okay, if I come in and say, Yeah, me and my investing partners, Eric, we'll pay 150 for this, the whole note. Then what you do is say, Hey, Seller, we got a quote for 145.
Dawn:So you get them under contract for 145. There's your $5. And then I send 145 into escrow title, the attorney, whoever it is, and then I send $5 to you. And that's, in essence, how it generally works in the note world. There's Welcome everybody.
Dawn:This is Dawn Rickabaugh, your host of Property and Paper Live. I'm the creator owner of notequeen.com. I'm a licensed agent. I do real estate and note investing, And I especially love the seller financing strategy that connects both those worlds together. And then when we can understand the secondary market for private owner carry mortgage notes, then we can make the whole rule go round, right?
Dawn:We can make the financial circle complete, which makes, boys and girls, it makes banks and Wall Street optional, technically. Not that there's not a place for everything, every financial instrument, but just theoretically, if more people than the small 5%, I think of the real estate world, understood the secondary market for notes, we would put a lot more satisfying real estate transactions together. And it's my guess that as this market unfolds and we have lots of, I would just say, interesting things developing all the time. And it's hard to know what will happen, but it just doesn't matter because in this space where we put mom and pop deals together, it just almost doesn't matter what's happening in the market. We can still make solutions that take care of everybody.
Dawn:Today, as I promised in the email, Eric, I think we just barely started talking a year ago or a few months ago to a year ago, I think. Yeah. Yeah. And he's been after me to I just wanna ask you some questions. I'm gonna let him introduce himself, but in short, he's a real estate agent in Southern Utah, and he's kind of going, what's this note piece about?
Dawn:And he's opening his eyes so that he can see more opportunities that are right under his nose. Like for instance, for me, after fourteen years of not being licensed, I was licensed as an independent broker California a number of years ago. And then just last year, for all intents and purposes, just like a couple, three months ago, I got re licensed, hung my license with a local independent broker and that she and I get along and she gets my way of doing things. So now I'm licensed again. So for instance, here's my week.
Dawn:Get back from camping trips. I'm taking a listing today, and on Friday, I'm closing on a note in North Carolina. Like, I like this life. It's very fun. You know, property and paper, real estate and notes, they're the same thing to me, just different sides of the same coin.
Dawn:And of course, as an agent, I'm always like, where's the seller financing piece? Where's the thing that can make this extra juicy for everybody? So that said, Eric, you've been waiting for for several weeks for me to get back to you or make time for you. So I'm giving you front and center today. And I think our conversation will be useful for everyone just to listen in on.
Dawn:And that would be great to just hear what they have to say too. That's what I like about this group.
Eric:All right, so I've been calling Owner Seller, I mean Seller Finance notes looking for people who've been willing to sell. I've come across two, both in Southern Utah. One in St. George, one in Hurricane. One's a condo, one's a single family residence.
Eric:The condo, he is more motivated because there's been a few late payments.
Dawn:The St. George one or the Hurricane one?
Eric:The St. George is a condo. The loan amount is 200,000. He has an interest rate of 6.9%. High rate.
Eric:He's got the three year balloon, two and a half years remaining.
Dawn:What was the amortization schedule? Was it fully amortized? Was it interest only? Can do in three or what do we have?
Eric:For some reason I have both thirty and fifteen years written down.
Dawn:But the maturity date was in three years, thirty six months?
Eric:Yeah.
Dawn:Okay. So do you know what the monthly payment is?
Eric:No, I don't know that. The buyer did 50,000 down. So it was
Dawn:50 sale with 20% down. Yeah. Okay.
Eric:And said, well, how much would you offer me with the loan amount of 200,000? I didn't know. I just took a guess. I said maybe 170, 180, probably. He said well how about a commission, how much do you charge?
Eric:Like 6%? I said probably less than that. I basically said I need to talk to my investor and get back to you. The guy lives in England, it's kind of strange. The So payments, I think, arrive in the mail.
Eric:They're direct deposit. So he has to kind of check with somebody here in Utah and see if the rent arrives. So he's got a little bit of a delay to know if it's late or not.
Dawn:Yeah. Interesting. Okay, so here's the deal. And I just love this type of question. I'm so grateful when people bring these up.
Dawn:Now I'm going to share my screen so you guys can see my calculator. Because just the one thing I want to drive home. Can you guys see my screen right now?
Eric:Yes.
Dawn:Okay. Dollars 200,000 note. Okay. What we do know about it is 6.9% interest rate. We don't know what the payment is based on, right?
Dawn:But if we just pretend, right? Let's just say it was fully amortized over thirty years for intents and purposes of coming up with the monthly payment. It would be that if it was fifteen years, fully amortized over 180, the payment would be closer to 1,800, right? Let's just say it's, we'll both, okay? So let's pretend like it's this, it's amortized over 180, but due in three.
Dawn:I'm just gonna pretend like it's a new note just for ease. So basically, in 36 payments, then we're gonna have a balloon payment ostensibly, as long as the person's credit is good enough for a refinance or they're going to have to sell, right? But if they're already late on a couple payments, I wonder what's happening with their credit. So a refinance might be off the table, right? So that's just as long as the person has access to credit, then this balloon is meaningful.
Dawn:Meaningful. Otherwise, they'd have to sell, either have to do a loan modification or sell the property, but what if prices have dropped and now the property's only worth 165? Now, even though they sell the property, the investors really not gonna get their full amount out, right? So when I look at a relatively short term balloon and I, in my mind, I go, yeah, maybe. I don't go, oh, that's the money that's gonna come in.
Dawn:We are not in Disneyland where you're on the little track. You get this, this, this, and this, and then for sure, no matter what, you get this right on this date. That almost, you know, it's usually a little different, right? So let's just see what we would pay now. Let's say if someone was happy with a 10% yield here, okay, what would we pay for a $200,000 note that looks like this?
Dawn:So present value, 36 payments of this. At the end of that time, a payment of this. This is the required investor yield. Okay. Then we'd pay 184.
Dawn:Okay. And then what if the investor needed 12%? Okay. What if they needed 15% because of a condo? And condos can be a little dicey because a lot of those condo units are not well enough maintained or they're undercapitalized.
Dawn:They might need 15%. So here's what you can see. Now based on this note, you really guessed quite well, I would say. This is not counting the fact that they're late. Right?
Eric:The Zillow shows the value of the condo $2.36.
Dawn:So basically we would get, that's not happy news. So he probably got $2.50, a little bit of a premium because he offered terms. But if you go to sell it for cash, that's when you find out what the real value is. So say that you had someone who would pay 170, there again, that's a high loan to value though, right? So let's say divided by, well, $2.36 is worse, but let me just pretend it's worth $2.50.
Dawn:That's 68¢ on the dollar. That's getting it pretty close. But if we say 170,000 divided by $2.36, and if a BPO came in, and it was lower than that, oh, that's getting to be a higher loan to value or investment to value, let's say. The guy who made the loan, right, the seller, he made an 80% loan to value loan. If we buy the note at a discount, we might be at 72¢, right, 72% investment.
Dawn:My dollars at risk against this collateral. That might be too high. So basically, I'm just pointing out that how many factors go in to this sort of thing. But let's say it's worth our BPO came in, broker price opinion came in, and it really was worth $2.36. First, before I calculate yields and start salivating about how much money I'm going to make, I gotta, I gotta underwrite the risk.
Dawn:So what's my maximum that I would go investment to value against this collateral? Because at the end of the day, if the borrower quits paying, it's the property that's going to bring the loan current by foreclosing and selling it if you have to get to that point. With this type of collateral, I'd be much more conservative. I don't think I'd go, I mean, to me, this is probably the max I would do. So it doesn't matter.
Dawn:So my yield just has to be that because it's not based on the yield, it's based on the risk. Or I might just buy a partial, right? Maybe I only buy part of the payment stream, or I buy the payment stream and the guy keeps the balloon, gets to see how lucky he is to get his full payment on that. Now, does that make sense so far? Because I just want to, here's one example of what's a $200,000 note worth.
Dawn:Any questions on this or comments? Dawn? Yeah.
Jay:This is Jay.
Dawn:Hi Jay, wonderful.
Jay:I have just a quick ask. Since we don't know the payment, we don't know if that payment includes the association or who's doing anything with that? Or did I miss that in the conversation?
Dawn:Yes, we're just dealing with a few unknowns. So I'm just taking this as a way to make a point, Right? So Eric would have to, you know, get with the seller or the three of us would get off on the phone and, you know, we'd really flush this out to see really what do we have, right? It would be totally different if the payment was based on a thirty year amortization, right? It would still be different, 6.9%, thirty years.
Dawn:What if it was fully amortized? Oops, I did something wrong. So yep, there we go. And $3.60 here. Okay.
Dawn:And then this is just principal and interest, right? Then we got taxes, insurance and HOA on top of that. And we hope that the HOA is well managed. There's a significant number of them that are not. And in many areas of the country, condos are falling a lot harder compared to their stick built counterparts.
Dawn:But what if it was a thirty year fixed? Okay, now how much is this 200 note? At 10%, what'd we say? Someone theoretically, not counting underwriting, the risk portion, just based on yield, someone might pay 184, if I'm remembering. But what if they did the same 10% based on this type of a note, what now what's it worth?
Dawn:150, okay? And if someone needed 12%, now it's worth 128. So, and what if there's a strategic error in how the paperwork was put together? What could this 200,000 note be worth? Nothing or 10¢ on the dollar, something like that.
Dawn:Okay, I'm just making the point that there's no way to just say about, you know, what kind of a discount am I looking at? There's no standard discount because notes, seller carry notes particularly are very different. And then what is their credit score? What has their payment history been? You know, what's the actual value of the collateral?
Dawn:How much am I willing to be exposed? In this kind of situation, if the seller didn't need a lot of money, I just buy the payments up to the balloon and leave it, or I would buy all the payments leading up to the balloon and maybe part of the balloon. It's a little trickier, but I do that all the time. So anyway, just say, what is a note worth? And so, Eric, let's bring it back to you on a stop sharing.
Dawn:Does that make sense? Like when I Yeah. Think about out loud about this?
Eric:Yeah. So loan amount offer would be 153 approximately.
Dawn:Just based on conservative underwriting of if this is a full purchase. Like this, I would do a partial on. I would much rather do a partial on this. And then on paper, least I'm providing the market holds out. The seller actually doesn't take very much of a discount if they just do a partial.
Dawn:They get some money now and then what they get out from under is the obligation to deal with the headache. You know, I do have in the back of my mind that I need to research Utah because you guys are a little bit different. Think notes are considered a security there and I would have to actually, I've never bought a Utah note. I would have to do a little background, have AI crunch on that for me a little bit just to go, you know, are there any other aspects that I need to know about buying paper secured by real estate in Utah. So just me thinking out loud.
Dawn:Anytime I haven't done business in, you know, in that state before, I give a refresher and remind myself of different things. So then in charging a commission, yeah, you could say to the guy, you know, you're an agent, and people are used to this, right? You say, like, a 6% commission would be a normal listing commission, or, hey, and what we do in real estate, if I get both sides, if you if you're a dual agent, hey, I'll do it for $4.4.5. You could say sales price one, call it one fifty round numbers. So what's your 4% of one fifty?
Dawn:Point zero four, 6,000. If it's, you you say, I'll just take three, half a side, you know, I'll take 3% of 150 is 4,500. So what you would do, in essence, you create the commission without, unless you wanna create like an actual listing agreement, and in the early days, I did create that for myself in California and go, This is dumb, that there's no listing agreement for notes. So I created my own. Usually what happens, and you probably know this already, but like if you get saying, Okay, if I come in and say, Yeah, me and my investing partners, Eric, we'll pay 150 for this, the whole note, then what you would do is say, Hey, Seller, we got a quote for 145.
Dawn:So you get them under contract for 145. There's your $5. And then I send 145 in to escrow title, the attorney, whoever it is, and then I send $5 to you. And that's in essence, it generally works in the note world. But there's nothing wrong to say you can just create a listing agreement, like, regardless of the price or the terms, I'm going to get X amount percent of either the balance of the note being sold or what it actually sells for.
Dawn:It's just whatever you get the person to agree to, or a flat fee. Thank you for engaging with my content. If you'd like to hear the rest of the replay, please go over to citizensoftherealm.com and join our free community. If you'd like to participate live, be sure to subscribe at notequeen.com and if you have a situation where you could use some one on one help, check out notequeendeepdive.com and schedule a private consultation. I guarantee that one hour with me will either make or save you thousands.
Dawn:Take this information and go out there and create financial solutions just one mom and pop to another. See you next time. Take care, everybody.