The Power Of Note Investing In Owner Financing with Nick Legamaro

One of the most underutilized methods for real estate investors out there is the owner financing model. Little do they know that it can be the source of their most profitable deals. Guiding you to take advantage of this is Nick Legamaro, the Chief Operating Officer of USANotePro. He joins host Paul Lizell to explain the amazing and often little known facts about doing owner financing. He also shows the big opportunities within it, how you can be your own bank, and what you can do to make the most out of this method. What is more, Nick then shares some of his experiences in the field, highlighting the importance of having a plan B.

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The Power Of Note Investing In Owner Financing with Nick Legamaro

Here with me is Nick Legamaro. He’s a friend of mine. We’ve been in several masterminds together. Nick does a lot of different things with real estate. One of the things I like that he does is the owner financing model. We’ll talk a bit about the owner financing model and he’ll have other things to talk about too. Before we get into that, why don’t you give us a background on what got you into real estate investing?

It’s funny as you get older, you stop counting things that you used to count. I still know who I am but people are like, “How long have you been in real estate?” I go, “I don’t know. I stopped counting at fifteen years.” I started out in the early 2000s and back then, there was not a lot of information available. There weren’t the educators, the masterminds, the curriculum or YouTube. You couldn’t figure out how to do anything back in 2000. There were no REI clubs. There was one and it got defunct six months after I found it, but there was no data and information. It was learning and hearing what other people were doing, and making a decision that if that’s what you wanted to do, you could be profitable.

In phase one of my real estate career, I did a lot of low-end fix and flips. I didn’t have the money to keep this stuff long-term. I didn’t know how to get raise capital or how to leverage at the time. I did realize early on that real estate was fun. I could do it on my own schedule if I chose to, because I had a full-time job when I first started. It was a way to do things on the weekends or evenings that allow you to be in real estate. I did a lot of that. All of a sudden, here comes 2007, 2008 and all hell broke loose. I was fortunate to get away fairly unscathed. It still hurts but it didn’t shut me down. That’s the one advantage that I have now over a lot of people. A lot of people that were pre-2008 didn’t survive, and a lot of them never came back.

You see in nowadays’ market space, whether they’re educators, whether they’re whoever, they didn’t exist back then. It’s all this stuff that happened in the last several years that set the tone of where we are now. It’s going to be interesting to see how people react as we go through this pandemic, and when these forbearances and foreclosures take place, what that looks in the grand scheme of things. I did everything wrong back then. I didn’t understand all that stuff but I got out of it. I took about a year off and I let the dust settle. I came back in early 2010 and I said I need to know what I’m going to do because I didn’t like what happened the last time. I surely don’t want to make the same mistake twice because it damn near took all the capital that I had, and put me in a deep hole that would be difficult to get out of. I was able to still recover and have a few bucks left over to get back into real estate. I said, “I don’t have a lot of money and there are a lot of people who have the same kind of problem.” Either they don’t have a lot of money to invest in real estate, or they don’t want to invest a lot of money because they don’t know what the outcome potentially is going to be.

By 2010 or 2011, give or take a year right there, there was a lot of stuff. There was more education out there. There were three-day events and REI clubs. The internet was much more prevalent with data. You can get it electronically versus having to go down to a courthouse or something. I said, “What am I going to do? What made the most sense?” Wholesaling by far made the most sense for a lot of obvious reasons. That’s why wholesaling is something that is popular for investors because it’s a low cost of entry, and the barriers or entries are low. Anybody can do it on any budget or even no budget. You can figure out how to wholesale with no budget because there are properties for sale everywhere that you don’t have to pay to get that data.

I went through and I bought a list. I sent out a list and I kept the price points extremely low. Several years ago, I was in the Dallas, Fort Worth area, you could get properties well-under $100,000. I was scared and a little apprehensive but I knew I had to do this. I sent this list out to these high equity, vacant, not owner-occupied properties like everybody else does. We don’t do this kind of stuff as much as we used to. I set the property value to maybe $60,000, $70,000. I sent out the yellow letters and postcards and got a phone call. I get a call from this lady and she goes, “I got your postcard. I have a house I’m going to sell. I’m retiring from General Motors and I’m going to move to California.”

I asked all the wrong questions. I said, “How much do you want for it?” Instead of asking something, “How much cash are you trying to put in your pocket?” She goes, “I want $25,000.” I go, “I can’t imagine what this house looks.” I go, “I’m interested.” She was like, “You can’t go into the house because I got tenants in there. I don’t want you to disturb the tenants because they don’t know that I’m selling.” I’m sure most wholesalers have had that situation happen. I go, “No problem. I won’t disturb the tenants.” I drive by the house and look at it. I go, “I guess that’s what a $25,000 house looks like.” It’s a little two-bedroom, one-bath, 700 square feet of that POS. It’s like, “People are actually living in that house,” and this lady is selling it, and she called me.

I go, “Let me get back to you.” I look at the house and I drive down to the end of the street at the corner at the stop sign. I look over and I see this sign that says, “Venta Casa.” I don’t speak Spanish. I know what “Venta Casa” means. It’s house for sale. I called the number and the lady answers the phone. She goes, “Ola.” I go, “Do you speak English?” She goes, “I speak English.” I go, “I saw your sign here. I know you’re selling a house, but I have a few houses up. I was calling to see if you might know somebody that might be interested.” I do know that if people were selling houses, they’re probably buying houses. If they’re buying houses, they’re probably selling houses. I go, “Let’s see what it is.” Her name is Lydia. I go, “Here’s the address but you can’t go inside the house. There are tenants in there. Please don’t disturb the tenants.” I called her and she goes, “How much do you want for the house?” I go, “$35,000.” I have no idea.

The lady that’s going to sell this says $25,000, I’m saying $35,000. This is my first stab at wholesaling. I start driving back to my house. It’s about 30-minute drive. Before I get back to my house, the phone rings and it’s Lydia on the phone. She goes, “I got buyers outside your house.” I go, “Don’t go inside.” They’re not going inside. They’re walking around.” She said, “Since they can’t get inside, they would only pay you $32,000.” I stopped talking. I said, “$32,000?” I’m insulted. I go, “That may work. How much do you want?” I didn’t even ask her that. She goes, “I want $1,500.” I started doing the math, $32,000 minus $2,000 is $30,000, minus $25,000 is about $5,000. I go, “I can make that work.”

Fast forward, I had to go get the contract. I got the contract. I did the signing and everything. I made $2,000 on my first wholesale deal. I didn’t think anything of it. A couple of weeks went by and I get another phone call on another property. This one is a bit nicer. She wanted $23,000. It’s ironic how the numbers were the same. She goes, “I owe $23,000. I’m divorced. I don’t live in the house anymore. I can’t pay taxes.” It’s one of the same stories. I go, “Let me go look at it.” This was a much nicer house. At the time it was worth probably closer to $50,000. It was clean. It needs some painting, but you’re not going to do much on a $50,000 house.

I called Lydia. I go, “Lydia, I got another house for sale. This one is a bit different though. It’s worth about $50,000, but if you have a buyer that has $25,000 to put down.” I didn’t even ask her if she had a buyer for $50,000. I was an idiot. I probably could have got it. This is how getting lucky sometimes is better than being good. She goes, “Let me see.” I go, “I’ll pay you the $2,000 again and I’ll carry a note for the difference. I’ll give them a good deal.” I did a note at 5%. I was dumb. I knew so little. It’s like what they say, you don’t know what you don’t know. I didn’t know what I didn’t know. That was for sure.

I sold it for $45,000. I got $25,000 down. I paid off the seller. I paid Lydia her $2,000. I made zero cash on the transaction, and I’m left with a $20,000 note at 5% interest. That was my profit on the deal. I go, “That wasn’t bad.” I asked Lydia, “Lydia, let me ask you a question. How many buyers do you have that got $25,000 cash?” This is my mindset and my thinking. I don’t even have $25,000 cash that go flowing around that I have to be responsible with. She gets this book out. It’s a spiral notebook. She starts flipping through it page after page. I don’t even know how many hundreds of names are in there. There are names, telephone numbers, and how much cash they have.

There was stuff as little as $5,000 or $6,000. I saw $80,000, $90,000 and $100,000. There are so much cash that was available out there, and these people didn’t know how to go buy a house. Here we are and I said, “Let me ask you a question, Lydia. If I had nicer houses like $80,000, do you think you could still get $25,000 down if we were to create financing on it?” She goes, “Absolutely.” We did hundreds and hundreds of transactions with that same model. We didn’t wholesale per se on those deals. We fix and flip them, then we’d create the paper, and then we’d sell the paper.

As fix and flippers, we were able to increase our profitability on the same property. Instead of making $10,000 on a fix and flip on an $80,000 house, we were able to make closer to another 15% more because we didn’t have to discount the prices on the retail. The problem was that we couldn’t find retail buyers that could get traditional financing at the time because lenders wouldn’t lend on the lower dollar value properties. If they did, they would require a much higher down payment. If you did that, then you had to be able to provide a lot of seller concessions, discounts and time.

From a monetary standpoint, we were able to get about 15% more by the same deal flow. Much later on, we started doing things on a much more creative basis, which is where we are now. That’s where there’s a huge opportunity without even having to take the properties down with cash, fixing and flipping them, and sell them. Whereas if you’re a wholesaler, you can monetize some of these leads that aren’t being monetized now.

It gives you a whole bunch of other opportunities, that’s for sure. It’s such a great method. The owner financing is one of the most underutilized methods for real estate investors out there. Many of them ignored it and don’t do anything. It has always been my most profitable deals for sure. I’m sure it will be the same.

Let me put this in perspective. I don’t think many people can even comprehend what I’m going to say because it doesn’t make a lot of sense. The amount of money that’s lent on a seller carry annually, which means people that lend money to buyers or borrowers that don’t go and get their money from a traditional bank like a Wells Fargo, Chase, Citigroup or Citibank or any of these other lenders out there. That amount of money that’s lent for the purchase of homes, land and businesses is about $25 billion annually. That’s how much paper is being written by people like myself or you. They do creative deal structuring. That’s a big number.

People didn’t even know that they can even be the bank. This is what this is about, how do you become the bank? How do you become a bank and control property versus own property? That’s the goal that we have. There’s a specific reason why banks are in the banking business. It’s because they can control and not own, and they don’t have to be a landlord. They don’t own squat. They don’t own anything and they don’t care to own anything, because when you’re getting paid, amortized money and your investment is secured by a property, why would you want to do anything else? You might argue, “I lose my depreciation. I don’t have ownership. I don’t own the house or the property,” but it’s either. If the bank lose depreciation, do you think they give a rip about it? Absolutely, not. That’s where we get to now.

Here’s where the big opportunity is moving forward. There are going to be properties that come up. We’re in the middle of a forbearance period and moratorium right now. All that stuff is going to come to a head at some point. Here’s the thing, almost everything, whether you’re a landlord and you’re not getting paid by your tenant, you likely have debt. The debt is held by a bank. If you are a homeowner and you have a mortgage, it’s likely held by a bank. Banks always get paid. Banks will never not get paid because they have the houses as collateral. That’s the security for the investment they made by letting you borrow money from them. It’s not a matter of if they’re going to get paid, it’s when. That’s the bottom line.

If you have a $150,000 house and your mortgage balance is $100,000, the banks are pretty well protected. Are they going to wait forever? No. Can they help you out and do a forbearance a little longer? Yes. Can they do a loan modification? Absolutely. It’s likely what’s to happen and what I think is going to be the opportunity for people that are wholesalers in general. The problem is that all these borrowers’ equity is tied up in these houses. This is what makes it different from 2008. Back then, you could do a short sale. There were a lot of short sales going on back then. There is not going to be any short sales. Not like we know it because there’s too much equity.

Owner Financing: Banks always get paid. Banks will never not get paid because they have the houses as collateral.

If I owe the bank $100,000, my house is worth $150,000. Why would I ever let a bank foreclose on that deal when all I have to do is do something else? I may have to leave. I might not be able to stay in the house. I’m going to have to sell the house. If the retail market is in a standstill for whatever reason and it’s not right now, there’s a likelihood they could sell retail, but it becomes a wholesale transaction at that point in time. Now, you have two options. You can do one of two things. If they have enough equity in it, you can either take that down to seller financing where it’s free and clear, or you can take it down and purchase the subject to the existing lien and give them some cash for that transaction and turn around. We’re not going to get into a lot of the weeds on a lot of that stuff.

That’s a big opportunity. The whole subject-to thing is going to be huge.

What I call it is plan B. When plan A fails, what’s your plan B? We work with wholesalers all over the country. Their plan A is what? As a wholesaler, whether you’re virtually wholesaling or wholesaling in your own city, your plan A as a wholesaler is to get a property under contract and assign it for a fee. That’s the wholesale model. It’s a transactional cashed out deal and then you’re on to the next deal. Here’s my question. If you had a seller that wants $100,000 for their house, and you come in at a cash offer of $80,000, and they can’t afford to take $80,000 because they owe $100,000 and it’s worth $120,000, how do you bridge that gap to get that deal done? It doesn’t work. That’s what most wholesalers fail to realize and understand.

Here’s a perfect example. I’m working with a good size wholesaler. They did about 96 deals in 2020. As a wholesaler in a major market, 96 deals, that’s a good business. It’s not big like an iBuyer controller or anything like that, but 96 deals. I said, “Let me ask you a question. You did 96 deals. How many appointments did you go on?” This was before pandemic. Now, it doesn’t matter if it’s virtual appointments or physical. “How many appointments did you physically go on to meet with sellers to negotiate to get 96 deals?” He had all his numbers and all his KPIs. He said, “480.” I go, “That’s good. That’s 20%. You’re a wholesaler and you’re getting 20%. That’s awesome. Let me ask you a question. What the hell happened to the other 375 that you didn’t get done? Where do those go?”

You know they were motivated because you wouldn’t even gone and had a conversation with them unless they had contacted you back and said that they were motivated to sell. You wouldn’t have gone on an appointment to meet with them unless you knew that it was something that you thought you could negotiate, otherwise you wouldn’t show up next time. You don’t go do 96 deals and show up on somebody’s doorstep hoping for the deal. There has to be some substance behind it to do it. I go, “What happened to the other 375?” He goes, “What do you mean?” I go, “Where are they? You had a motivated seller.” He goes, “We couldn’t come to an agreement on the sales price.” I go, “That’s the problem.” You couldn’t figure out a way to give them what they were asking. You were more concerned about getting what you wanted.

Once you realize that you can solve a problem and you can give somebody what they’re asking for, you get a lot more deals. You don’t get them all because sometimes there’s a situation that doesn’t allow you to do it. It becomes plan B. When plan A fails, what exactly is plan B? Plan B is figuring out a way to structure a deal, they get paid on it, that allows the seller to get what they’re asking. I’m not saying they are going to get all. Maybe they’ll get some now and some later. It’s bridging that gap and satisfy what there is. That could be them. If it’s a free and clear house, they get some now in the form of a down payment, and they get the rest of it over time. We know that’s the creative side of it.

If it’s got an underlying mortgage from Wells Fargo, then it’s getting to sell it to us on terms subject to the existing lien, and then giving them some cash on there. That’s a whole other piece. There’s a lot of money to be made in what I call low equity, no equity and negative equity deals that nobody’s going after. There’s an opportunity that can be utilized to help people out of a bad situation. We’re problem solvers. We don’t want to take anybody’s house. We want to help people that want to help themselves. We can show people how to maybe be more patient and wait.

In the last several years, all the mortgages that have been written traditionally, the rates are less than 4%. It’s low. You can take and utilize the existing balance that’s being held with the bank and leverage it. People argue, “You can’t do that.” You can do it. It’s perfectly legal because if you go read a mortgage note, all it says is, “If you don’t do what we ask you to do, then we have the right to call the note.” It’s not like it’s a federal offense or something. They have the right to call the note. They don’t because the banks are only concerned about getting paid. They don’t want the property. If they do, then you have to figure out a way to secure the note. There are plenty of ways around doing that as well.

I’ve known a ton of people and I’ve done quite a few of these over the years, especially pre-2013 subject-to. Never has a bank ever asked. We’ve always made the payments. As long as you’re making those payments, they’re not bothering you. The only time it ever becomes an issue and I’ve heard from people is the homeowner’s insurance were not done correctly.

That’s a red flag. What we do is not difficult. It’s just complex, but that’s part of the equation that you’ve got to be careful if this is something you decide you want to do. You’ve got to partner with somebody that has the expertise and experience, so you don’t create yourself a problem that you don’t want to have to deal with. I’ve done over 1,000 transactions. I personally created over 500 notes. I’ve built a business around doing that. Not only have we built the business around doing it, but also helping other people figure out how to creatively structure a deal so they are protected and they get paid long-term. It’s almost like do it for you versus do it yourself.

We did a deal together. I think it was in Groesbeck, Texas. We picked it up for $40,000 and you marketed it. We sold that for $89,000. We got $9,000 down and had an $80,000 note. Even without collecting the first payment, we had that sold for around $70,000 on that note. There are a lot of ways to get that going. We had talked about the different deals that we do down the road. Maybe we do something like that where there are two mortgages on it, and you keep the second mortgage.

That’s another thing. With that deal, if you were to turn around and they had wholesaled it traditionally, if it has been a wholesaler on that deal, what would the profit have been on that?

Probably about $10,000.

If you’re making $10,000 on doing it the plan A way, the wholesale way, we now integrated this other option, and we were able to take advantage of value because we eliminate the middleman. That’s what you’re doing. You’re eliminating an investor that’s buying it at wholesale to go sell it for retail. You’re cutting him completely out of the equation, and you’re going directly to the end buyer. When you go to the end buyer, that’s why it makes so much money. I don’t know what the net end up being on it.

It would have worked better than if we would have wholesaled it.

We were wholesaling to $10,000 and we didn’t even put anything into it. We sold it for as is value. It was fine. We won because we made more money than if we would have this wholesale. The borrower, the buyer won because they got to buy a house.

It will be difficult to qualify for a mortgage.

They might not have been able to qualify it for. They might have been self-employed. They may not have a credit file. The value of the property might have been too low for the location. There are a lot of things that may have prevented them from buying. We were able to provide home ownership to a hardworking family at a fair value. The appraised value on that house was over $100,000. They have an equity position on it that they would not have gotten otherwise. Here is the thing. What was the interest rate? It was 9.5%, 10%. They go, “How do you charge 9.5% and 10%?” It’s simple because what’s the interest rate on rent? People are like, “You can’t charge that out.” First of all, we can and we do because the government says we can as long as we keep it under the Dodd-Frank guidelines, which we do. We underwrite them correctly with an RMLO, and nothing gave them a bunch of weeds on this.

We are allowed to write to a certain percentage above a certain basis, which is APLR. All that means is that we can write that net note as long as we prove that the borrower has the financial capacity to make that payment and they say yes. When we say yes, we do the deal. That’s exactly what happens because the interest rate on rent, they make $1,000 a month payment for rent. They get zero value back out of it. They don’t make a nickel in return because the interest is infinite. Here’s a perfect example. I pulled this deal up. I sold a house back in July 2014 for $85,000. I got 10% down. The payment was about $675 a month at a 10% interest rate. I pulled it up. The borrower is performing. They can pay and made 78 payments. We collected about $52,000 in P&I.

I looked up the property online. They’re paying 10%. They paid full market value that was not discounted. It was worth $85,000, gave us 10% down, and we gave them a 10% mortgage. That same property now is worth $170,000. It doubled in six years. You’ve got a good deal now. Here’s the thing when people don’t take into consideration when they look at interest. It’s deductible. You deduct the mortgage interest on the note. You get to deduct property tax from your taxes. It’s a great deal. We still have this note, and the balance is still almost $73,000.

Owner Financing: Once you realize that you can solve a problem and give somebody what they’re asking for, you get many more deals.

If they sell and they get out of the deal, the bank is going to get called. Who’s the bank? We’re the bank. They’re going to say, “We need to pay off on Bandera,” the street it’s on. We’re on the amortization table and they owe us $72,800. Then we get paid off. We get all our money on the interest on the front side, plus we get that. Think if there was an underlying debt in place and it was a seller carry, and you did the same thing. It’s the same model and same formula. It’s just who gets paid and how they get paid is a little bit different.

It gives you many options and flexibility. We did this with a property several years ago, similar to yours, up in the Pocono Mountains in Pennsylvania. We sold it to her for bargain price at $90,000. It had gone up to around $200,000 in value during that time. She did some repairs and upgrades to it, but the market has gone up. We collected probably about $30,000 in principal and interest payments during that time. They refi-ed and I got paid up whatever that $82,000 balance was in that. If I fix and flip that, I wouldn’t make as much money as I did with that particular deal. It was tremendous. I put nothing into it. That’s why being the bank is ultimately the best.

It’s not for everybody. I would highly recommend that you have somebody work with you or partner with. Here’s how we work with people. I’m selective on who we pick, and it’s got to be the right property, the right location. If I think that they have the ability to generate deal flow, what we usually do is that they’re responsible for doing certain parts of the deal. We are responsible for all the legal paperwork side of it. Make sure it’s papered correctly. We’ll figure out a way that they keep one and we keep one, so everybody has 100% ownership of something.

There are many ways to structure the deal. It’s about deal flow and coming up with a way to get more deals through the pipe with the same amount of leads that come in without adding any additional costs to your marketing efforts. There’s stuff that’s already sitting in the pile for these people that have been marketing where they couldn’t do the deal. They can go back to their old leads, and now they can go back and say, “Mr. Seller, I may be able to get you a lot closer to your asking price than we first had discussed. Are you still interested in selling?” You come up with some creative hybrid deal that allows the seller to get what they want. Contrary to popular belief, not all sellers want cash for their property.

Everybody thinks they have to sell for cash and that sellers want to sell for cash. That’s not the case. Here’s a perfect example. It’s been a few years since I did this. I went to a seller and he wanted $100,000 for this house. It was worth $100,000. Coincidentally, those are the numbers. I go, “Why do you want $100,000?” He goes, “That’s what it’s worth.” I know exactly what it was. I go, “Why are you selling it?” “I used to live here and I had a tenant. Now, the tenant is gone. I’m tired of being the landlord.” It comes up all the time.

I go, “You’re asking $100,000, it’s worth $100,000.” I’m thinking to myself, “There’s not a whole lot of room in this one for me.” That’s not a good business model to buy something and sell for what you pay for. It’s a lot of work for nothing. I go, “Let me ask you a question. What are you going to do with the money?” He got a little offended by that, “What do you mean what am I going to do with the money?” I go, “This is not a personal question. What are you physically going to do with the money? Are you going to take this $100,000 and go buy a sports car? Are you going to go on a trip around the world? What are you going to do with the money?” He goes, “I don’t know. I never thought about it. I’m going to put it in the bank.”

I go, “Here’s what I can do. I will give you $10,000 down payment.” I knew how much she was paying for rent. She’s been getting $700 a month for rent. “I’ll give you $800 a month in rent until it’s paid in full.” She started thinking about it and goes, “I’ll do the deal.” I gave him $10,000 down. I’m making payments of $800 a month. I got a seller finance note at full retail price with $10,000 down and 0% interest until paid in full. I turned it around and I sold it for $115,000. I got $15,000. It was worth a little more than $100,000. You had to do some paint, carpet and stuff, but I didn’t even do that because it wasn’t that bad. That’s what I told him. I got $115,000 for the house. I got $15,000 down payment.

You’re $5,000-plus now.

I made $5,000 on that deal. Most seller could never do that. It’s not going to work. I got the $5,000, which is fine, then I wrote $100,000 note. Do you think I wrote that $100,000 note at 0% interest?

You get 10%.

When you go run a dual amortization table and you run one at 0%, and you put the payment in, and you run the other one. I have my debt paid off in 5 or 6 years. $800 goes into 90 months. That’s about 7.5 years. I’m going to have it completely paid off in 7.5 years. I’m winging the numbers because I don’t have them in front of me, but you can figure it out on the thing. I do know that I’m going to get paid for 30 years so I wrote a 30-year note. My payment is going to be paid down. At the end of the day, I’m left with the backend 23 years of the note. What do you think the balance is due on a $100,000 note at a 10% interest in seven years?

You’re probably going to get paid $300,000 on that.

No, but the unpaid balance on the note is still $96,000.

It’s not changing.

I got zero now. I made $96,000 at some point in the future on something that had zero. That’s why we do what we do.

That wholesaler let’s say was 20% of his leads. He was closed on. He could potentially close on 30% to 35% if he utilized this method with it. Maybe even more depending on what you get there.

What we do in that situation is I partnered with them. I don’t need him to go out and try to figure this out on his own. I identify the opportunity when plan A fails, then plan B is an option, and we’re their plan B. That’s how we partner with them. We then go and do what we do. We have a good relationship and we’ve figured out how to split the deal and the profit up, and make more money collectively than we would have made individually on doing our own stuff.

I’ll do preacher deals with you here too for sure, down the road here. As soon as the deals look good, then it makes sense to go that way, I will use more of those. You do them in multiple states. Are you doing them in New Mexico or Arizona as well?

We buy a lot of notes too. I pretty much have a nationwide footprint now. I buy notes pretty much anywhere. If these notes get created, then I’m a buyer for this stuff too. I help people how to create it to get the maximum money out, but then I’ll turn around and buy the note if it’s something that meets my criteria. We buy all over the United States. I don’t create in all states unless it’s a good deal because there are different rules and regulations at a state level. Some states are judicial, some states are nonjudicial, some states are pro-lender. Texas and Georgia are pro-lender. When they say don’t mess with Texas, they mean they don’t mess with Texas banks because the bank will get paid in Texas. They don’t give a whole lot of lead way on that. It’s not like California or Illinois.

Also, New Jersey.

Owner Financing: There is no other way that gets you more returns with less risk than investing in a note correctly, and the due diligence is done properly.

They’re like, “We’re two weeks away from Christmas. We’re going to wait until after the holidays.” Pay your bills, people. If you need help, then ask and come up with a solution for it. At the end of the day, you can’t keep kicking the can down the road. Hopefully, when you create, you create yourself enough of an equity position for the borrower so that in the event of a default, you have the ability to come in and instead of foreclosing, do a deed in lieu of foreclosure, get Cash for Keys, maybe buy it from wholesale. When worst-case comes to fruition and you have to go do a foreclosure, there’s enough equity in it to cover the cost basis that you have. You get brought whole at that point in time. It’s a matter of if, not when. If the deal was done correctly to protect your investment because it is secured.

You’ve got many ways to dispose. If you feel like it was a pain in the butt and you know that foreclosure might take forever, you could sell it as a nonperforming note. There are buyers out there who will buy nonperforming notes.

That’s exactly what big banks do now. I don’t go to foreclosure sales. I know a lot of people go into foreclosures and the courthouse stuff, and buying stuff on a foreclosure. Most of the big banks that own a lot of notes, what they do is they don’t let it get that far to go to foreclosure because they don’t want to own the property. They don’t want to manage it. I don’t think that we’ll ever see foreclosures at the level that we’ve seen in the past because the banks are smart about what they do. They’ll sell the note at a discount nonperforming. They’ll let somebody else go manage it that doesn’t have the restrictions and rules and regulations to follow what they do.

They’ll go sell it. If they got to sell a note for $100,000 loss, what they do is they don’t necessarily take it all. They’ll say, “That’s going to be the price.” They’ll let it nonperforming for another six months and then they’ll start taking write-offs little by little in each month or quarter as they go along. The face value of the note is what they ended up selling it for. It’s like a workaround that they have. There are a lot of banks that sell non-performing notes. They may never even mess with the seller, with the borrower. They’ll pass it down the road and let somebody else manage it.

If it’s a deal where there’s equity in it or a good bit of equity, note buyers will want it because they’re going to pay a little higher premium for it, whereas a lot of times, they’re going to get cash.

They know they’re protected because they’re the bank. They know the bank is going to get paid and they have to be a little more patient with it. They know they have an asset that has a lot more value than the note value that they’re holding. If it does, worst case scenario, goes to foreclosure, then they can make a decision. They could buy it themselves on a foreclosure if they wanted or they can let it sell, whatever the case may be.

The next question I have for you is what we talked about. Where are you looking ahead now? What direction are you going to in real estate? Is there a certain thing you’re looking to do? You’ve done note stuff for a long time. Are there a bunch of different things you’re weighing and trying to figure out?

It will always still be note driven. Warren Buffett says, I’m paraphrasing because I don’t know the exact words, I should know because I referenced it a thousand times, “If you don’t find a way to make money when you sleep, you’ll work until you’re dead.” That’s why I always like the note business because it’s truly the closest to a passive income as you can. It allows you to work. Even if you don’t have a big stack of cash that you can invest in with, there are still other ways around it, because you create the opportunity by buying stuff on terms from a seller and wrapping it like we talked about. Here’s the other thing, and most people don’t realize this, there’s about $10 trillion in IRA money that’s out there now. That’s only a portion of the $30 trillion or $35 trillion of retirement money anywhere. Some of that can’t be touched because you can’t touch your stock and your pension.

On the IRA stuff, the self-directed IRAs, whether it be SIDRA or your Roth IRAs or your HSA accounts that you manage, all that money you can utilize to do exactly what we’ve been talking about. You can go buy or create your own note with that money. You can be the bank with IRA money. Most people do not realize that they can utilize their retirement account to use in those kinds of investments. If you want to do it, or you think that you want to look into it a little deeper, you find an administrator of the IRA that understands that as well as they need to. You’re not going to give them advice, but you want to make sure that they understand the protocol and the process to make sure that the documentation is done correctly.

That’s the key is to make sure you’re protected and IRA is protecting you. There’s a ton of money and we’ve got opportunity coming up. There should be quite a bit more REOs for people.

The government for the rest of the year, maybe they’ll extend it, who knows, but they already said you can take $100,000 out of your retirement account without penalty. I already used my IRAs to invest in the notes anyway, but I had people that I know that I go, “Take $100,000 out and buy a mortgage note. Get an asset that’s secured by a property, and get paid somewhere between 6% or 8% on that deal. You’re making zero or you’re losing money because it’s sitting there idle in the form of cash.” It’s amazing how much money sits idle. The difference between an IRA and a 401(k), the 401(k) invests on your behalf. A lot of times, people that have an IRA or Roth IRA or SIDRA, they control it. That’s what SIDRA is, it’s self-directed. A lot of times, they forget it’s there.

They don’t even realize that the money is not working for them, and they got to be a bit more proactive with it. It’s a little more self-starting because the administrator is not going to say, “Paul, you’ve got $100,000 in here. Why aren’t you investing it in something?” It’s not their job. They’re not allowed to do that anyway. You should know it upon yourself to say, “I’ve got $100,000 here. What can I invest in?” If you have money, whether it’s in a retirement or you can do something similar with insurance annuities or whatever, look at these as an investment strategy to build long-term cashflow and still maintain a high level of capital preservation. For the returns you get, I don’t know of another thing that gets you more returns with less risk than investing in a note if you do it correctly and the due diligence is done properly, and it’s vetted the way that it needs to be done.

That’s important. Even if you’re interested in not creating them but buying some, just go out there. There’s a bunch for sale. A lot of people are like, “I sell some of mine occasionally. You sell some of yours occasionally.”

I have to because now I capitalize my business. I would love to keep everything that I wrote, but you run out of cash. I don’t care if you’ve got $100,000 or $10 million. If this is what you do, eventually you run out of cash. You don’t have the ability to continue to do it because all the cash is tied up in notes. That was the problem that we ran into early on in our business. We ran out of money and we had to figure out a way to recapitalize the business.

I got four notes. They’re all performing at 26-plus months, most of them here. They’re all in good equity positions now and with a history of good payments. That’s going to be easy for me to sell. I could get near par value for these notes, especially the ones with big equity in themselves. Get the cash and then put it in the business, rinse and repeat because I could turn that cash in many more note deals that are bigger.

That’s exactly the reason why we have to sell because we can make a lot more money and bigger returns than the 10% notes. However, that’s not the strategy in an IRA. The strategy in the IRA is to preserve the money. You build it and grow it so that when you need it when you retire in 10, 20, 30 years, you built up a nice reserve because you let your money work for you instead of not.

There are a lot of wholesalers that read this blog. If somebody wants to reach out to you and find out how they could do some joint ventures with you, what’s the best way to get in touch with you?

Our forward-facing website is USANotePro.com. That’s for when we go solicit for the purchase notes, but it’s a good place to get all the general information or view. That’s how you can reach me directly. You can email me at [email protected]. There are other ways to contact us if you go to that website. If you get a lot of comments back on this, Paul, and you hit a lot on something that’s similar, or you see something that looks like we want to dive in a bit deeper because it’s a request of several, then we can readdress that on another episode and see if there’s something we can do to help your audience out.

Our students that occasionally want to do some of these deals here, I’m going to try to connect them with you. You can work out the details and everything with them and go from there. I appreciate your time. Thank you for joining us here. You gave a lot of great info here. I know this can be a popular episode. I appreciate it.

Important Links:

• USANotePro.com
• [email protected]
• www.REOAuctionAcademy.com

About Nick Legamaro

USANotePro.com is an online portal designed for real estate and note investors looking to buy or sell loans secured by residential real estate. The portal allows users to submit loans for sale, obtain cash offers or quotes and manage offers, and complete note sales transactions online. USANotePro.com features three primary asset classes: Performing loans, Non-performing loans, and Real Estate Owned (REO) properties. Interested and previously vetted buyers can submit qualified offers online through the website. If you would like to be notified when new assets become available, please complete the form at USANotePro.com.

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