Every new investing strategy that you learn has something to offer – and when you are note investing, there are some questions you should ask before getting started! The great news is, its possible to purchase notes and much more with self-directed IRAs but in order to be successful, you need the correct knowledge so that you avoid mistakes!
In this episode recorded for the Quest Trust Company’s “Self-Directed” Saturdays, Tracy goes over her “Baker’s Dozen” in Note Investing. You’ll learn about:
- 7 Benefits of Owning Notes
- The 3 P’s of Note Buyers: People, Property, and Paperwork
- The 13 Questions Every Note investor Should Answer
13 Questions You Need to Answer Before Buying Any Real Estate Note with Tracy Z Rewey and Quest Self Directed Saturdays – Video Transcript
“Nicole: Welcome to Self-Directed Saturdays with Quest Trust Company. I’m Nicole Bacot, an ira specialist and so happy to be your host. Today we have a very special guest, Miss Tracy Z with us. Well it is time for the women of the hour and her wonderful presentation so I’m gonna go away. Thanks so much Tracy for being with us today.
Tracy: Thanks thanks for having me. It’s always so much fun to be here at Quest and do these webinars on Saturday. I get to talk about my three favorite things:
1) buying notes or note investing
2) saving money on taxes, and
Today we’ve got the baker’s dozen of note investing so you can see all those yummy 13 donuts up on the screen but we’re really going to talk about 13 questions you should answer before buying a note and just have a little bit of fun with this. We’ll also get a little bit serious about how we’re going to protect our money because we work hard for it and note investing is one of the great methodologies for using your self-directed retirement account.
Now I just want to mention that this presentation is designed for informational purposes. I’m not a tax advisor or an attorney or financial advisor so I always suggest people use those professionals. We’re going to look at some real life examples that worked for me and that may work for you.
Now we’re off to the races, or off to the bakery in this scenario!
First I want to talk about the seven benefits of owning notes. What are some of the reasons to buy notes and why they make a good fit for a self-directed IRA. Next we’ll talk about getting to know the three Ps of note investing and then the 13 questions that every note investor should answer.
I want to let you know I’ve been buying and selling real estate notes since 1988. That means I have over 30 years experience at this. I started working for large institutional investors for the first 10 years of my life and then I started my own company with my husband in 1997, working as a small private investor. In the institutional setting I was referring notes to a place with private fund and now I am doing a lot of investing our of a self-directed IRA because of all of the tax benefits.
So, why do I love notes so much? Well I was a landlord turned to a ‘lien’lord. I got tired of being the landlord and I wanted to be the bank because nobody calls the bank at 2:00am when they lock themselves out after a late night or their three-year-old flushes their favorite stuffed animal down the toilet. That doesn’t happen when you’re the bank so that’s one of the big benefits of owning notes.
It’s backed by real estate, something we all know and love. It is an appreciating asset so if somebody doesn’t pay on a note then we do have the ability to take back the real estate as coverage — it’s collateral.
You can get good solid returns on notes. Depending on the quality of the note, you can see double digit returns on real estate notes. It’s also less hands-on which is good if you don’t have as much time. It’s great if you want to diversify because you can manage more assets than you can real estate, because it is less hands-on and time intensive. Invest in notes is also a great option for a retirement account as there are so many creative options with promissory notes, you can make loans, you can buy existing notes, you can buy and sell notes with seller financing, and you can wrap. If you have a small amount to invest, you can do partials. You can participate with other people’s IRA’s — there are just so many creative options that you can do with real estate.
But, what I really like doing with notes is harnessing the power of interest. We all know what an amortization schedule looks like and you know that when you look at that amortization you’re paying back two two and a half three times the amount you borrow. That’s because of the power of interest and making it work for you.
Now if you’re investing in real estate notes one of my favorite tips and tricks (and everybody here of course is on this same train) is that you can do all of this tax-free or tax deferred with your IRA. But, it doesn’t have to be your IRA as Nicole mentioned, it could be an HSA, or a simple IRA, or a SUP, there’s so many different ways. Roth, Traditional — all those types of accounts can be self-directed and can invest in real estate notes. And you control the investment level, that’s one of the things I definitely like, is you get to decide how much you want to put into that note. Whether you want to do a partial instead of a full to limit your exposure, you are in control. I don’t know about you, but I don’t like investing in things where somebody else is in control. I guess you could say I have control issues. You would think after 30 years I’d get over that but I haven’t and it continues to this day and that’s why I like doing notes.
I’d like to introduce you to the Three P’s of Note Investing.
So the first “P” are the people. You’ve got the payer, the person making the payments. You’ve got the seller of the note. Those are the main people involved. And then you’ve got the property, that’s what backs up that note. If the note doesn’t get paid you get to take the property back. So, we analyze the people, we analyze the property, and we analyze the third “P” which is the paperwork (that’s the promissory note, deed of trust, mortgage note, or contract for deed depending on your state).
You look at the people and the property and if people don’t pay you look at the paperwork and make sure you can enforces the lien. So all three “P’s” are very important. And you’ll see that the 13 questions we will get into all surround either the people or the property or the paperwork. So I love to start off before we get into those 13 questions.
Now, just give you an example of a note that I had used to purchase in my self-directed IRA. So you can make loans to people in your self-directed IRA or you can buy existing notes, my sweet spot in investing has always been buying seller finance notes at a discount.
You might be surprised to know that there were 27 billion (with a “B!”) of seller finance notes created in 2021. Of those, 30,000 were first position and there is a good inventory out there now. Some people like to create their own seller finance notes by buying property and selling it and using financing that way. And some people like to lend money. Today we’ll be focusing on buying these notes at a discount notes that already exist. Maybe you don’t want to have to lend money or don’t want to buy a piece of real estate and sell it, so we’re going to talk about a note exists and how to analyze.
That this example happened in one of our favorite states to buy notes, because it’s very favorable to creditors and to people who own notes. We buy in lots of other states, but Texas is a popular one. This note was a first position performing note, deed of trust in the Dallas Texas area. So you can see a picture of the property and there you can see a copy the promissory note (see video, 15:00).
It had sold for $91,900 and when we were presented to buy this note it had six years of seasoning. It was created in 2014 when the seller sold the property to the buyer and allowed the buyer to make payments to that seller instead of getting a bank loan. When that seller decided they wanted to cash out, six years had gone by that buyer had been making payments and they’d paid down their balance to $75,834.91. They put a little money down and then they had paid down their balance and they still owed 9.5% interest at $800.29 per month and where we were in this amortization schedule they had about 176 months left.
So just a little under 15 years from now, the buyer (the borrower) compared to their sales price, they had about 83% percent loan to value. That’s what they owed, the $75,000 compared to the value at $91,900. They had about 17% equity, they actually had a lot more equity because from 2014 to 2020 the property value has gone way up, so they actually had more equity.
So this note was offered for sale on one of the note listing platforms that you can visit if you don’t want to go out market for notes for yourself. It was offered to buy at the $75,800 balance for $68,430 which was about a $7,400 discount.
So, that was the note presented for sale as an example, because now we’re going to get into the 13 questions. I’ll come back and tell you how those 13 questions were applied and how that note turned out.
The Baker’s Dozen of Note Investing
Now we’ll get into the baker’s dozen of note investing. Interesting fun fact for your Saturday, you know baker’s dozen is13 instead of 12. And I was just so curious, as it’s such a common phrase, how did that occur. One of the theories behind it is that there used to be a tax implemented, almost like a fine, because people were shorting bakeries of their full 12 eggs. And so because they were so afraid to get in trouble they threw in an extra one. And that’s why it’s called a baker’s dozen at 13.
Without further ado let’s get started. We’re going to go over 13 of these questions and we’re going to come back apply it to the deal. Then of course we’ll open it up for some Q & A, so we always like to have a little question answer session at the end
Number One: How Long has the Buyer Been Making Payments? And are they Current?
So we call this seasoning in our business. Seasoning as in cooking as in baking, keeping with our theme, seasoning is how long have they been making payments. Remember on the note I presented they’d been making payments for six years now. I have a lot more faith in a note that’s been paying for six years than say a note that’s only paid for one month or three months or six months. Usually a 12-month payment history is a good solid payment history, but I’ve bought notes that only had one month of seasoning, one month of payments, but I look very carefully at some of these other things to help weigh the scales.
You also want to know are they current, so have they really been making a payment every month? One thing I caution everyone about that we’ve seen in the note investing market, is people will buy a note that’s not paying and they will get the note into a forbearance agreement or modification to help people get back on track. Which is all great it’s one of the wonderful things in note investing, they’ll call that current and the payer the buyer might have only made one payment or two payments on their repayment plan on their new forbearance. So I always like to see how long have they been paying and if they’ve been making a payment every month to know that they really are current. We’ll get into how to verify those payment histories in an upcoming question
Question Two: What is the Current Value and Condition of the Property?
When I first do a deal, I do like everybody else and I’ll hop on Google Maps and I’ll just take a take a look at it. I’ll look at Zillow and Realtor.com, but that doesn’t tell you the current condition of the property. So Goole Maps is a good place to start. Later we follow up with boots on the ground, we’ll have a real estate agent go by and take current picture and we’ll get a current value of the property, but to start with the internet’s a really easy. Note that Zillow overestimates values, but I’m looking for trends in values and have they been going up in that area, have they been stabilizing? It’s a little easier right now because everything in every market seems to be going up, but I want to know if the values have gone up or if they’re stable and what condition is the property. You might be surprised to find out if a property is vacant, or that’s in poor repair, or boarded up windows — not trying to scare you but these are things over 30 years I’ve seen. So you always have your processes, you always have your questions, and you make sure you get the answers you want to your satisfaction before you fund a deal.
Number Three: How Much Equity is There Now?
When we look at equity we look at the buyer the borrower’s equity, that’s called loan to value. What do they owe compared to what the property is worth. Obviously if they have more equity, they have more dollars invested. Investment to value, ITV, is how a note investor is going to invest into that deal compared to the property value. Because they’re buying notes at a discount or we can buy 10 years of a payment stream or five years we don’t have to buy all 15, 20, 30 years.
So I’llI look at LTV and ITV. My husband and I have a great way of looking at LTV and ITV. LTV is the likelihood that buyer/borrower will keep making their payments. The more equity they have, the more they’re invested, the loner time they have the seasoning, the more emotionally invested to the property. That’s loan to value, what’s the likelihood that buyer/borrower will keep paying.
ITV on the other hand is what’s the likelihood I as an investor or my IRA as an investor is going to be protected. If they don’t pay so and I have a 50% ITV and I’ve got to take a property back, I have to spend some legal costs to get that back-through foreclosure. I will still be able to resell the property and more than recoup my investment if I’m at a 80% investment to value. The likelihood of getting whole is less than if i’m at a 70%. So know as an investor where you want to see the LTD and the ITV because that’s really important
Question Number Four: What is the Credit Worthiness of the Buyer?
Are there any bankruptcy filings? So how people have paid in the past is a very good indicator of how they pay in the future. We do see a lot of notes out there where the person making payments had a mishap in life and maybe their credit is poor or maybe they don’t have any credit. So you’re looking for life occurrences that they’ve gotten corrected. You don’t want to buy in the middle of a train
wreck right? You want to make sure that they’ve gotten through that. If they did have poor credit and they’re back on track, one tip I like to tell people is you can go to pacer.gov gov and you can actually look up a public record. It’s a government site for bankruptcy filing, so you can see if they’ve had any bankruptcy filings or if they’re currently in bankruptcy or if they’re a habitual bankruptcy filer. so they that’s one of the ways that you can get some good information on that buyer borrower and
What’s the credit worthiness of the buyer and are there any bankruptcy filings —very, very important to know that information.
Question Number Five: Is There a Servicer Collecting and Validating the Payments?
That’s a servicing company. If you’re familiar with real estate and you don’t want to manage real estate you get a property manager. They rent the property out, they collect the rent payments, they handle making sure that repairs are made, and that the debt servicing is done. In notes, we have something equivalent to a property manager, we have a note manager. That’s called a servicing company and that servicing company is a third party that collects the payments from the buyer borrower applies them to principal and interest. If yours reserves for taxes and insurance, which really is a great thing to have if you’re doing notes, then they’ll keep track of that pay the taxes and insurance. And then they remit the net payment to your self-directed retirement company or if you’re buying it yourself to your company.
So yes, it allows you to be very hands-off. It also allows you to make sure that the debt is serviced accurately. These can be a little bit complicated as different states have different laws, so by using this third-party servicer you’re making sure they stay in compliance. They’re sending out the appropriate notices when the time comes handling any defaults, appropriately sending out the year-end statements, and keeping track of taxes and insurance. So these third-party services play an important role and fortunately they’re much cheaper than a property manager. They run about $20-$30 a month. Just to be hands off and being able to know that that third party servicer’s handling is great plus. I don’t like making collection calls or reminding people to make their payments, so I prefer to have somebody else do that.
I like to buy notes that have a third-party servicer because I can get that validated payment history. Remember the first question is if they were making their payments and if they were current. I can ask to see the servicers’ third-party payment history to validate. When I buy notes where there’s not third-party servicers and then I set them up with a third-party servicer after the fact. So that is another option, but if there’s no third party servicer you have to recreate that payment history a different way. Usually you ask that seller to give copies of checks or their deposit statements where they have made that payment. Sometimes when buyers make payments in cash, their money orders sometimes it gets a little more complicated so that’s just one of the things you want to know: is there a servicer in place. If there’s not, my suggestion is to set one up.
Number Six: Do the Documents Match the Terms Presented for Sale?
Well I guess it’d be six and a half right — baker’s dozen! So now we’ve moved on into that third “P”, the paperwork.
So you want to read those documents. Make sure that if it says it’s a 9.5% interest rate, it really says that. If it says the payments $800, it really says that. You look at the buyer, the borrower, and the seller. You look at when it
has to be all paid and due, if there a balloon payment, or not if there an acceleration clause if they get behind on their payments. Do they have to keep the taxes and insurance current? These are all standard things on most note mortgages or notes and deeds of trust. You want to see if it has the accurate legal description on there so that the right property is is been described.
Documents are prepared by humans and sometimes humans makes mistakes, so you want to be sure that you’re matching up the documents with what you’ve been told.
Number Seven: Are the Real Estate Taxes Paid Current?
This is a huge one because real estate taxes usually take lean priority over mortgage or deed of trust — any kind of loan. So you want to make sure they’re paid current. Fortunately you can usually go on the county websites and look up and see whether they’re paid current. You also want to know how they’ve been paid current, were they paid current because a servicer has an escrow account they’re collecting from that buyer/borrower. Or maybe it got paid current because the taxes were delinquent and somebody bought that tax lien so that money is still owed but the county’s considered current. So, very important to figure out are they paid current and who paid them to make sure there’s not any outstanding tax liens.
Ive seen people forget to do this and you just assume people take their taxes current. Now if you find a deal with delinquent taxes that might be a reason that you could negotiate a better price. If you still like the deal for other reasons, you can usually deduct those from the purchase price, in our lingo that’s called a fade. Meaning that when you make an offer on a note if something in your due diligence comes up different than what you was represented you can ask for price revision, that’s called also a fade.
Number Eight: Is the Property Insured?
I could do a whole session just on this because you want to be sure that the buyer is keeping that property insured. Because if that property burns down or if it has other damage you know the buyer is going to be struggling to make those repairs. So you want to know it’s insured.
We’ve all gotten loans for our own home or an investment property, the bank makes you keep that property insured. In our world, the buyer borrower is the main lost payee and then you have additional loss payee which is the mortgagee. So you’re the bank so you get to be on there and share if there is any claim on that insurance. So very,very important.
The reason I could do a long topic on this is that when I first started buying notes from my own account we always made sure there was insurance. But sometimes at the institutional level we had some master policies in place that would cover us or some forced place insurance in place. I had a deal that I ended up having insurance lapse that I bought for myself after I’d left there. I call it the burn to learn, but unfortunately the property did burn down the borrower let their insurance lapse and so obviously I had to get very creative in how to get out of that deal because the land itself was not worth enough to pay off that loan. So that that’s why I say it can happen, if you do this business long enough you’ll see that. And if you know there’s insurance in place then you can just sleep so much easier at night.
This is one of those things that the third-party servicer will help you track.
Number Nine: Is there a Title Policy and Updated Title Report?
This is near and dear to my heart because I started out in the real estate business. Is there a title policy and updated
title report so you can get a title policy if they issued one on the mortgage, a lender’s title policy initially, then you can get that original and just get it updated. If there’s not I highly suggest you get a title commitment for a lender’s policy. Title policies provide insurance that the buyer/borrower really owns it and the person selling you the note really
owns the note/mortgage of the note/deed of trust. So we will sometimes see notes that have transferred hands seller won’t be the original seller on the note, so title reports will tell you this. It’ll tell you some other important things that we’ll cover also in some upcoming questions.
I like to get title insurance, an existing policy, or just have a new one issued. And if you’re making loans you can have a new lender’s policy issued to. Firstly issue they issue a commitment and then they issue the policy after the fact.
Number Ten: What is the Lien Position and What Else is Owed on the Property?
That’s what that title insurance policy and an updated title report, they also call it a date down, is going to tell you. Are you in first lien position or are you in second lean position? Does the person selling the note still owe some money that needs to be paid off out of proceeds? Or does the buyer/borrower owe some money? Is it ahead of you or behind you?
Are there HOA liens, that would be if the property is in a homeowners association? Are they keeping those associations in some states, called super lean states, an HOA can take priority over mortgage or deed of trust, just like those real estate taxes. Maybe the buyer got a second loan a, heloc that’s behind you. I don’t get as worked up with liens the buyer had that are behind me, I’m mostly concerned if anythings ahead of me. It is good to know if the buyer borrower has other liens behind you. Sometimes that can provide protection, sometimes it might mean that they’re over encumbered. You just kind of have to look at what shows up on title to know that, but that’s what the title report will help show. What lien position you’re in and what else is owed on the property.
Question Number 11: Who is the Current Holder or Seller of the Note Being Purchased?
This comes back to the people. We think so much about the person that’s going to make the payments on the note, sometimes we don’t slow down and say hey I need to underwrite the person selling me the note. Why is that
important? Well first of all we want to know they own what they are selling us, so we want to see that they’re either on the original mortgage, deed of trust and on the original note as the party receiving payments. Or if it’s been transferred, which is all perfectly legit, you need to make sure that the note has been endorsed, also called in allonge, and that the mortgage or deed of trust has been assigned and that assignment of the mortgage or deed of trust has been recorded. You also want to know if they’re selling as an entity, is it good standing with the state?
Go out and do an old-fashioned google search on them. You want to know if they have any outstanding liens, warrants, court cases, complaints, all those sorts of things you want to know if they’re in bankruptcy or not, because if they’re trying to sell an asset and they’re in bankruptcy then that has to get approved by the bankruptcy court. So know the seller you’re purchasing the note from.
Sadly we’ve seen the last few years some sellers of notes taking a little bit of advantage of people and so I want you to underwrite that seller of a note. If they are selling a lot of notes ask for a referral of somebody else they’ve sold a note to. So very important to underwrite that party, the seller, as one of those people in our questions.
Number 12: Where is the Original Note and Will it Be Delivered at Closing?
This goes back to paperwork. That original mortgage note or promissory note is like a check, it’s a negotiable entry instrument, and so it’s not usually recorded. The deed of trust or the mortgage are recorded, they’re the lien on the property. But that promise to pay is that note and to show that you own that note you have to present the original. So we liken it to a check because it checks a negotiable instrument, if you took a check down to the bank and you tried to deposit a copy of the check, well the bank could go “uh bring that in” and if you brought the original in and you weren’t the original party on there they would say “uh it needs to be endorsed over to you.”
So that’s similar to that allonge or that note endorsement, so you want the original note, you want it endorsed. Now you want it delivered at closing. Sometimes what happens in the note business, seller says “’Im not giving you my original note to you give me your money” and we say “we’re not giving you our money until I get the original note.”That’s okay, that’s good business on both sides. So you set up through a title company or an attorney or an escrow closing company, it varies a little bit depending on your state. Just an exchange, just like when you buy real estate you do an exchange right so funds are delivered into that trust account, that third party gets the original note, and they trade for you basically. They do that transfer for you.
I like using a title company whenever possible because they’re also issuing the title insurance and then I just know it’s all handled. Once in a while you’ll run into a note that truly is lost. There are some ways to fix that. I always say to consult with your attorney but there are some ways to do a replacement note, get some lost note affidavits but it varies a little bit by state. Your big question is what do I have to present if I ever have to enforce my interest through foreclosure or taking the property back because somebody isn’t paying? So very important. I’ve known people get into the note business and not realize that important distinction, so it’s definitely one of my 13 questions.
Question 13: What is My Risk vs Reward for Each Exit Strategy?
So I have risk, my risk is the buyer might not pay, the borrower might not pay. If they don’t pay, one of my exit strategies is I get a deed-in-lieu foreclosure and negotiate some kind of cash for keys to get it back. Always my first thing, it helps them exit gracefully and it saves me a lot of time and money on a foreclosure. If they don’t do that, my next exit strategy is to to file a notice of default and go to foreclosure, using an attorney and following the state laws for noticing on that.
All right so I’m going to go through all of those. How much money will I make if they pay to term like they’re supposed to? How much money will I make if they default and I have to get it back how much money? How much will I make if they pay-off early? I’ve seen people buy notes for what we call par, par being a hundred cents on the dollar instead of a discount being less than what’s owed, and i’ve seen them pay par or premium (premium pricing being if somebody owes a hundred thousand dollars they might pay a hundred and one thousand dollars; par being a hundred thousand note you buy for a hundred thousand; a discount being I buy a hundred thousand dollar note for something less than a hundred thousand). Well what if you pay par or premium, you buy the hundred thousand dollar note for $100,00 or $101,000 and that buyer borrower pays off tomorrow. Well you’ve got expenses to purchase that note and you’re not even going to get those expenses back. So think about an exit strategy if they pay-off early.
Now fortunately in the note business we usually buy notes at a discount and if they pay off early our yield goes up and I’ll show you a little peek of how that happens here in a minute. So think through all the exit strategies.
In my world there are about 15 exit strategies for a performing note and another 10 for a non-performing note. I like to look through, I don’t want to get too convoluted on that because they’re the basic but they all play off of each other, because if I had to take a property back then I could resell it or I could run it out or i could resell it and or my IRA could sell it on seller financing and do it all over again. Get some down payment and get payments again. So you have all these different exit strategies. I could sell a partial to another investor to get whole and go out and reinvest. So I like to go through each investment strategy.
I also caution you just to make sure you’re getting a yield, a net yield, that’s worth your risk. I mean if you’re talking about investing in notes for 5% – 6%, it’s fine if the face rate of the note is 5% – 6%. But you’re going to want to probably discount it down, so you’re getting 8%, 9%, to 10% because if you’re only getting 4% – 5%, I know that’s way more than you’re getting at the bank, but is that enough to compensate for the risk of potentially having to take the property back? Look through all of those and know your limitations based on the kinds of notes you’ll buy. You know my risk reward is different for a land note or a mobile home and land note than a single family residence. Sometimes I’ll buy multi-unit notes or mixed-use property or I’ve bought notes of mobile home only that are on rented parks. If the note is riskier, the lower my investment to value and the higher my expected return of yield is and the greater the discount. So just keep that in mind when you’re pricing notes, I always back them up against investment to value risk, yield and discount.
What happens if they pay, what happens if they don’t pay, what if they pay-off early. So that is my number 13 probably the most important of all of the baker’s dozen.
Note Investing Example
So now we’re going to go back to our example. So we’ve got this note we’re buying and remember it was offered for
sale for $75,834 dollar balance, so you take the $75,834 minus the $68,430, you’ve got a discount of about $7,404. So if they paid off earl, I would get that discount immediately. If they just paid term, instead of getting 9.5% on the note, because I discounted it down, my IRA was expected to get a gross yield of 11.36%
Now if I back off the servicing cost, it goes down a little bit (about $20/mont) and if I back off acquisition costs it goes down a little bit. But that was the anticipated yield on that so it looked like a great deal to me. I answered all 13 questions adequately and this note was placed into a retirement account, my self-directed retirement account, and guess what happened on this note?
It paid off early, seven payments were collected on it. Remember the old seller had got six years of payments, my IRA got seven payments. The payments went to the servicing company and the servicing company forwarded those payments on once a month to the retirement account custodian. That’s $800.29, so I got about $5,600 in payments and then that buyer/borrower said “hey, I can refinance at something better than 9.5% and they paid off early. They went out and refinanced.
Because it paid off early and I got all that discount back. I had a gross yield to the IRA of 25.74%. It went up from 11% to 25.74%. When I backed off my costs and everything it was a 24% net yield. Now that’s based on IRR time value of money, I’m a big proponent of the financial calculator — I actually do a whole class on using the financial calculator not just to buy notes but to negotiate debt, negotiate real estate and how to make interest work for you. Get on the right side of the cash register, instead of against you. We do creative things like if I pay 4% and I’m earning 8%, we can do arbitrage we do all kinds of fun things with the calculator. But understand when you buy at a discount, time value of money – money’s worth more now than later – so great news your yield goes up because you bought this at a discount.
Now on all of this that happened on this deal, one question that I asked of the 13 questions that turned out that to be a problem I had to fix and it was fixed before closing, it turned out that this property had been rehabbed and then resold back six years ago. And believe it or not, there was this lien code violation for unmowed grass that had sat there and not been paid. And so when I pulled my title report and got it all updated there was this lien that hadn’t been paid, now it wasn’t very much it was like $275 and it wasn’t the current buyer/borrower’s fault. It was actually that when they sold it the seller hadn’t cleared that off ,they just didn’t see it the first title company. Believe it or not had missed it so our title company had found it, so it was not a big deal. I just approached the seller before closing and said, “hey this is this outstanding amount due, I would like to reduce what I’m paying by that and I’ll make sure that gets paid and released from title.” And so as a follow-up that was something that was done through the IRA and the IRA paid that tax lien and got it released, because it’s not that buyer/borrower’s fault, it was something the seller should have taken care of. So no big deal, it was a small amount, but it just shows why you always ask those 13 questions on every deal.
So I want to thank you for attending, we’re going to pop over here in a minute to some Q&A (watch video for this segment), but I want to thank you for attending and if you would like a copy of these slides I’m happy to share them.
I invite you to check out noteinvestor.com because we have over 300 free articles of different experiences of buying notes and you can even look for that burn to learn story about that that note I bought that that had the property burned down.