Categories: Podcast

211 – Note Investing And Creative Seller Financing with Eddie Speed

Synopsis

At a time when we’re experiencing a global pandemic, people have found creative ways to not only survive but thrive. Today, we have Eddie from Dallas-Fort Worth, Texas. Eddie’s been buying real estate notes after being introduced to them in 1980. We learn the advantages of being the bank versus being the landlord and how this financing strategy will play a tremendous role in the next 18-24 months.

Key points

What Is Note Investing

Buying notes involves using strategies to be the bank when it comes to real estate investing. This is different from those who purchase real estate and become the landlord. In buying a note, you take the position of the lender and have the legal right to collect the payments or have the property as collateral.

The Benefits of Buying Notes

Notes can be sold at a discount. A note owner can also scale owning notes excessively versus scaling owning properties.

It is safer than buying a property because while you may only have 60-70% in the value of the property in what you pay for the note, you will be way less invested than what the collateral is worth.

What People Learn In Note School

In Note School, students learn about making good decisions and realize all the benefits of real estate. There is a gigantic gap in financing right now with 31% of closings last month being fractured closings. This presents the perfect opportunity for investors to take advantage of in the next 18-24 months.

Students are trained in certain foundational principles and are given an easy to follow a checklist of what they need to do.

Prior to the COVID-19 pandemic, Note School had live classes, but now virtual classes are held. Students start with a book on creative financing. Later, they’ll learn how to buy property when it seems overpriced and how to buy property without getting it on a discount by how you structure the terms.

Note School lays out everything about the equation before students progress on the ladder. They have a 3-day class where they take several variables of notes and explain how each note dovetailed.

The Nitty-Gritty Of Note Investing

When it comes to financing through notes, Eddie would usually structure his financing to fit their story and answer their financial needs. On any given day, Eddie has 1,200-1,800 loans, but he doesn’t serve them.

Returns are dependent on how much risk you’re willing to take. The higher the risk, the higher the yield. A passive investor, who won’t be dealing with any problems, might be able to get a 6% yield. But those who go to Eddie’s Note School and do the work can earn as much as 40%.

With the expectation that the market will likely go down, there will be more opportunities for creative seller financing. There will be markets that are less effective, so the people who will succeed are those who learn to refinance out of their hard money loan and still keep a second.

Creative seller financing can also involve requiring the seller to carry that top end of the risk while the buyer will carry the bottom end of the risk.

What Are The Tax Benefits

While there is no depreciation in a note, Eddie believes there’s a difference between deferred taxes and erased taxes. Other exchanges similar to a 1031 Exchange are available that will let you take deferment and take income over time with notes

Why Now Is The Best Time For Note Investing

Eddie predicts that seller financing in 2021 will be double the seller financing of 2018. This is because it’ll fill the void of what conventional lending won’t be able to.

Expect a mountain of seller financing to come in. Some of which will be sold at a discount. But as a general rule of thumb, interest rates for seller financing will be to the note owner’s advantage, so this will be a good time for note investors.

We’re also facing a time when there will be a transfer of wealth. There are 6 million problem loans on residential houses today, which doesn’t include the people who haven’t gotten their rent, the people on forbearance, and the people with delinquent loans.

It’s a great time for more investors to come in and learn as much as they can. This way they can buy properties using creative seller financing and sell them to people who could not get a traditional, conventional mortgage.