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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.
Three transactions happen because of just knowing this one strategy and how to, put that together and how to underwrite the risk and make it fair and all the things. Isn't that fun, boys and girls? Welcome here to Property and Paper live. My name is Dawn Rickabaugh of notequeen.com. I'll be your host as we talk about real estate and notes.
Dawn Rickabaugh:Right? Property and paper, real estate and notes, and tele financing is that vehicle that connects the two. And, I had promised okay. I know I don't want AI companion. Do I have any chats?
Dawn Rickabaugh:No. I don't. Okay. So I talk promised to talk about partials today. Does anyone, have a particular note or situation that they're gonna want to talk?
Dawn Rickabaugh:I just wanna know who's in my pipeline, for bringing up later. So don't hesitate to chat even though I might not even see it. So you guys can you guys can help me keep track of the chat if I if I miss it. So hey, David. Mike, Ken, great to see you.
Dawn Rickabaugh:But anyway, so basically, of course, we're talking about you you guys know I love my little gizmos. Right? My dance between property and paper. Because if you can take a property and know how to turn it into paper or take paper, a note, and turn it into property, everything in between, what we're really after here is taking knowing how to fluidly move between cash property and paper with equal ease. You should be able to turn cash into a property and then like many people do when they get older is they take their real estate portfolio and turn it into a paper portfolio.
Dawn Rickabaugh:So they end up owner carrying and carrying a note and be the lender instead of the landlord. Where we get stuck is not knowing how we get from the note back to cash or to put this note together in such a way that we can get the maximum possible cash. And I've talked many times about this, but the the big disconnect even among professionals that can walk sellers through seller financed transactions, almost none of them ever tell their client, by the way, did you know that the note that you're carrying through this owner financed transaction, did you know that there's a market for that? Did you know that someone might pay you for that? And also that depending on how you put it together could have greatly affect the value of your note.
Dawn Rickabaugh:And so it's just a travesty in in my mind that the way that most owner carry people find out that there's a market for their note is not from any of the professionals that took care of them, not their real estate broker, not their accountant, not their attorney, not their title company, not their financial adviser. They find out from a postcard from some yahoo like me who would send a letter and say, hey. You wanna buy you sell your note? And they go, oh, that's a thing? And they get on the Internet and they start searching then they find all the people who spend thousands of dollars a month on SEO for note buying.
Dawn Rickabaugh:But so we we everybody needs to step up here. We've got a massive gap in the market that needs to be filled with this understanding of how solar financing and the private mortgage market can keep the wheel going around, the merry go merry merry go round going around. Yes. You know, with or without the banks. So we we have a really I think it's gonna be an interesting year and nobody knows.
Dawn Rickabaugh:So many smart people I listen to, and nobody really knows what's gonna happen. The fact that the silver market silver's what is it today? Well, it was over 90 last time I so you know what? I think it was 95 last time I looked. So things are changing.
Dawn Rickabaugh:Things are breaking. Things are shifting, and they may be slow and a slow grind, slow burn as they like to say, or we could have many blocks, any take your pick of black swan events that that could rapidly change the financial system. The financial rails are being built upon the blockchain. If you're paying attention to that at all, it's undeniable. And so there's a lot of positioning to be done now with this blend of cash flow that keeps your bills paid and hard assets that appreciate with inflation and get ahead of the trends that are that are happening.
Dawn Rickabaugh:Anyway, also, I just I forget to mention a lot of times that I have this concept of roundtable investing, and here's my roundtable. And these swords are where I'm playing in the market. So of partials, where do they fit? All they fit down in here is if not landlord is if I'm buying I'm buying a front end partial of somebody else who did seller financing, right? They carried their paper and I'm either buying or selling these, right?
Dawn Rickabaugh:So depending on what what I want. Okay? So this is sector, the passive investor sector, we have retail people, we have professionals, wholesalers, I do a little of that too and I'm an agent now again after many years, and active real estate investor as well. So anyway, why partials? If you're a seller, you can you you own a note, you're receiving the payments on a note.
Dawn Rickabaugh:You do not have a note to sell if you were making the payments, that's not your note. That's your debt, that's your liability but you cannot sell a note you are paying on. Yeah, you can only collect or sell a note that you are receiving payments, you're the note holder, you're getting, it's a real estate annuity, it's this money that just comes in month after month after month hopefully automatically without a lot of drama. But if you get the, if if thousand dollars a month just isn't handling it and you have an expense that are you you need to pay off a loan, you have medical, expenses, you need to buy, this, you need to send Joy to college, whatever. If you sell the whole note and it's a long term note, you're gonna you're gonna get chopped off at Denise, right?
Dawn Rickabaugh:So like in general, a typical owner carry note that mirrors the bank paper meaning 6% interest rate, thirty year fully am fully amortized, you're you're looking at, well, 50¢ on the dollar, let's just call it a fat round number, okay? So if you only need $50,000 why would you take 50¢ on the dollar from the overall balance, right? So a lot of times you can you can get the cash you need for selling the future payments. Right? Taking the big discount.
Dawn Rickabaugh:And why is it a big discount? Right? Because inflation there there you guys, I'll tell you about this note if we got have time. Fifty eight year amortization. Amortization, I just, I've never seen that before but I would love to be the one paying on that, that would be the power position there.
Dawn Rickabaugh:But anyway, it's a way to, without, sometimes we can and we'll go through this in the first example I'm bringing up is that you can sell three, four, five, six, seven years worth of the note payments, the receivables and give up very little of the principal balance. So it's it's a very, it's a discount you can swallow that that it's palatable. Okay? And then sellers, here's, okay you you this is your this is your niece or your nephew and you carried paper because they're family and now they're not paying and what are you gonna do? Foreclothes on your nephew?
Dawn Rickabaugh:That's pretty it's pretty embarrassing. Right? So, I mean, it it just like family suicide. So you can sell a partial. You could sell the whole thing for a massive discount or you can sell a partial, let someone else be the front man, do the dirty work that needs to be done, it's not dirty work, okay?
Dawn Rickabaugh:I don't want to frame it like that but the natural consequence of behavior, someone can be the enforcer of the natural consequence of behaviors and you get to keep, you're hidden in the background and they will never know that you still own most of the note. You can sell off a piece of it to someone who can take care of the mess for you without discounting it tremendously. Number three, real estate investors. If you're like a rehab, like a wholesaler or rehab flip guy or whatever like that, this is your business, you can create your own private pension by okay, so you can sell for a great quickly and easily for the highest possible price offering owner financing. If you do it intelligently, you can sell off the front part of the note to recapitalize, get your seed capital back, maybe not all of it, just depends on the situation but most of it so that you can take that seed capital and rinse and repeat and rinse and repeat and all, you know, when you're older and you're tired of the the hamster wheel, these notes start coming back to you at five and seven and 10 and 12 and 15 and you can set yourself up with a massive private pension, with these, you know, like run like crazy while you got all this energy and this fire, you know, do it, go out there, do it, crank, crank, crank and then when you're tired, these notes just start coming, these note payments start coming into you, okay?
Dawn Rickabaugh:Now, buyers, as a buyer, why do I like partials? Well, if there's a property worth 400,000 and the note is 300,000, do I wanna buy that note at $2.50 or $2.80? What would I be? That's still 70 less about 70¢ on the dollar. Right?
Dawn Rickabaugh:Or would I rather have that same yield and only come to the table with a 100,000? So do I want a 100,000? What if the property drops in half? Oh, well, I would rather have the the 100,000 partial. Right?
Dawn Rickabaugh:Not always. There's so many like, but what about this? Okay. I'm just bringing up some some train of thought that we can follow. So it's even if the market would drop in half, which I'm not saying will happen, maybe in some areas that's already dropped quite substantially depending on where you live.
Dawn Rickabaugh:But if you bought a $300,000 note, the whole thing for $2.80 and the property drops in half, now you're exposed. You have no protective equity. If you just bought the partial, you're still you're still you're still sleeping really well at night. Right? So, for buyers, the other reason is, you know, it's sometimes I have done things just for the positioning.
Dawn Rickabaugh:Of course, you like the yield and the income, but buying a partial is yeah. You get the income plus you bought an option for free because guess what? Nobody's Nobody's gonna gonna buy behind you. You control the note in deed of trust, the note in mortgage. You you're gonna create an option where you're the you're the first right of refusal to buy more pieces of the note.
Dawn Rickabaugh:Okay? So you got deals in your pocket today and you got future deals that you have positioned yourself really wisely to get. Okay? So you might even do a loss leader. If this is a note you really, really want, you could consider just going, I'm not even gonna make money on this, but I'm gonna position myself that I can buy more later if you know?
Dawn Rickabaugh:Anyway, just to put it out there. Then number six, deal makers, agents, you know, whether you're licensed or not, a professional or hobbyist, you can get paid making real estate transaction happen that otherwise would not be possible. There's ways to make money up front in the middle and at the end depending on how deep and how broad you want to play in the space. So this for one example and so this is really fun. Alright.
Dawn Rickabaugh:And this is why I have my calculator up here. So feel free. If you don't have a financial calculator, you need to get one. HP 10 b two. It won't cost you very much.
Dawn Rickabaugh:Okay. So 420 sales price. Their property wasn't selling. It was listed, and it wasn't selling. It wasn't selling.
Dawn Rickabaugh:It wasn't selling. Okay? And there's this person, like, she only had 22,000 down. K? She couldn't qualify for a loan, but she just, like, was on it and on it.
Dawn Rickabaugh:Finally, said, okay. We'll do it, but we need we need $80,000 because the property we wanna buy is and we we can't get a bank loan either. And they've been sitting on the market, but they need us to put $80,000 down minimum. So we'll take your 20, but where are we gonna get the rest, the 60? So this is where us property and paper, Island of Misfit Toys people get to play.
Dawn Rickabaugh:You know? We get out our geeky stuff and and we start going. So basically, let's put the deal, in the calculator. $4.20. Oops.
Dawn Rickabaugh:Let's clear all clear all. $4.20 sales price, $20,000 payment. So we have a $400,000 note. Right? And, I believe the interest we had to make it what she could afford.
Dawn Rickabaugh:Right? So she could afford this this payment that we're gonna get to. So, we probably reverse engineered it from there. They did they did a 360 fully thirty year fully amortized, and then, basically, it was due in five. That's pretty common when someone's gonna own or carry but they're not in the business but they'll carry for five years.
Dawn Rickabaugh:This is pretty pretty common that you will see. So they'll get 60 payments of $21.47 at the end provided the note pays off on or before that date, right? Or pretty close to that date so they have 367 left but I'm gonna take that out because I don't want that to mess up my numbers. Okay. So let me put this back the way it was.
Dawn Rickabaugh:Alright. So then the the seller needed not only the 20 plus an extra extra 60,000, they also had to have $500 a month to live on from the note. So what that means is of this payment here, I have to well, in this case, I'm adding to a negative number. This I I am gonna collect the whole payment. No.
Dawn Rickabaugh:We had a servicer that collected the whole payment, sent them their $500, and then sent me the $16.47. So this is what I'm dealing with. Like, this is my receivable here. And what am I gonna need? I don't know.
Dawn Rickabaugh:I just always start with 12 and what let's see. What do they need to get? 60,000? I'm just gonna start there, and I'm gonna go, oh, alright. That's pretty close to 48 payments.
Dawn Rickabaugh:Okay? And then let me look let me look to see. Because on the short amortizations, your yield has to be higher to make sense. Because you're gonna tie up a big bunch of money. Is it worth tying up 60,000 to make 20?
Dawn Rickabaugh:It's not like an interest only. If it was interest only, you'd be making all this interest every year. You'd make a bunch of interest. Right? So it's a different animal, and people have a blend usually of amortized notes and interest only notes in their portfolio both short and both long term.
Dawn Rickabaugh:So, yes, this makes sense. I would do this. Right? There's room in there. That makes sense.
Dawn Rickabaugh:So that's how I figured it out is that's for sale. I can buy 60,000 for 40 the for the right to receive. I take the full assignment of the whole note. You look in public record, we're not sharing it. I own the whole thing, and that's why you have a servicer usually in the middle to keep score.
Dawn Rickabaugh:Everybody knows that what the deal is. So the remainder interest is this, and how do I know it's $3.74? We put the balloon in before, but I'm not even buying up to the balloon. I mean, I'm only buying four out of five years. And and this is no seasoning either.
Dawn Rickabaugh:Right? But what's my loan to my investment to value on this? 60,000? I'm I have have risk against the $420,000 asset. Let's say that's generous and it's only worth $3.20.
Dawn Rickabaugh:I'm still like good all day long. Right? I mean, it's less than land value for heaven's sakes. Basically, to get okay. Well, what will they get after my what will the balance be of the note?
Dawn Rickabaugh:I have to recreate the note. Other people may be way smarter and wizier at this than me, but this is just my old school way that I did it with a pencil on the iPhone is how I started. And t value. Not gonna lie. T value.
Dawn Rickabaugh:Okay. So then after my 48 payments, what's left? $374.05 20. So the seller gets their price. They finally get off the market.
Dawn Rickabaugh:They get $20,000 from the buyer. They get $60,000 from me, and they get 374 remainder interest. Right? So this isn't even counting the down payment, but they have for their $400,000 note, they only took, like, a $5,500 discount on the principal. That's very palatable on paper, isn't it?
Dawn Rickabaugh:And, also, what's more fun is it it gave them the chance to now go and buy their property that they wanted. Okay? So now they take the 80,000, the 20 down, and the 60 from the partial front end partial sale of the note, now that 80 goes over here as a down payment on this property. But the seller needs a 150. So now what do I need to bring to the table?
Dawn Rickabaugh:This was all in one one deal. We did it all in the same week. So the note is in this case, they don't need to keep a piece of it so they're, the numbers you'll see are are a lot different. These are slightly off but alright. $5,500 minus 80 is a $5.20 note.
Dawn Rickabaugh:Not $5.20. Oh my goodness. Me and public math is not okay. Four twenty note, and this person wanted 6%. I'm gonna make the feature value zero again so it doesn't mess up my thing.
Dawn Rickabaugh:And, again, it was a $3.60 due in '5. So that payment was 2,500. Now the more money you collect sooner, the less of a discount it actually feels like. And, also, the interest rate's a little higher, so that me would mean that the discount is even less. Right?
Dawn Rickabaugh:So, basically, then well, let's just what do they need? Oh, they need 70,000. And this is the I get the whole payment. I don't have to leave part of it for the seller. So I always just start with this number just for kicks and gills to see how close am I.
Dawn Rickabaugh:Oh, well, that's pretty close to 36. That's a good round number. And that's closer to 18 which based this is a this is three years instead of four. I needed like $14.15 to make it make sense on a four year partial but let's see if this on a three year partial oh, it sounds like such a high interest rate but like how much money you're actually getting back? Oops.
Dawn Rickabaugh:Oh, no. Oh, no. This is just what happens. That's hard. Very sad for Dawn.
Dawn Rickabaugh:She makes these mistakes. Okay. Need 70,000. I'm gonna, oh, I'm do this. We already got to that point.
Dawn Rickabaugh:Right? So let's look at the amortization schedule. I'm gonna tie up $70 to make only 20. You can see you're making interest and it's a high yield but most of your money you're getting back every month is in principle and that makes it really safe, but it also means you now you're collecting your principle back and now you gotta instead of just deploying a interest only thing and letting it ride for a while, you gotta collect your principle and then redeploy it again because you just don't want it sitting there idle. So there's all sorts of different ways to to think about it but yes, this makes sense.
Dawn Rickabaugh:So, this seller gets 80,000 down payment, 70,000 just selling only three years of the note and how do we get this again? What's left is, well, I just recreate the note again like you've seen me do already couple times now. And then, if you if you're listening listening on podcasts this is really boring for you. That's for sure. So I put 36 in N here, and then the future value six after I receive 36 of these, the seller of the note, seller of the property and then the seller of the note gets the principal balance when they get the note payments back is 403 by 153.
Dawn Rickabaugh:So we can see that they're getting okay, so here's this number, they got this and then for the sale of the note, they got did I do this right? Yes, 70,000. Right? So they're getting 473,000 for their $4.20 note. What?
Dawn Rickabaugh:How does that even work? It's magic. It's magic. And this is the magic of knowing the discounted market for notes and seeing how you can create solutions. So then what did this person why did they need the $1.50?
Dawn Rickabaugh:50? Because they went the next week after that and closed on 10 acres of land somewhere that they needed a 150,000 cash because they're gonna build their dream home there. So we Just by knowing this partial trick, this owner financing and notes, we made one real estate transaction happen that otherwise wouldn't have happened. We made a second real estate transaction happen that wouldn't happen and we got this person to be able to pay cash for their dream home into retirement. Three transactions happen because of just knowing this one strategy and how to, put that together and how to underwrite the risk and make it fair and all the things.
Dawn Rickabaugh:Isn't that fun boys and girls? 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. Thank you so much for engaging with my content.
Dawn Rickabaugh:If you'd like to participate live and hear the rest of the replay, please go over and join our free community, citizensoftherealm.com. Hope to see you around the queendom. Take care.