Creative Finance Series - Episode 16: Understanding Notes

Introduction

• This episode is focused on understanding notes within creative finance.
• Discussion on the length of video formats preferred by the audience.
• Real estate as a lifelong endeavor requiring continuous learning.

What is a Note?

• A note is essentially a real estate IOU, a promise to pay with specific terms.
• Example from "Dumb and Dumber" to illustrate the concept of IOUs.
• Jerry and Pace use three kinds of notes in their transactions.

Types of Notes

• Secured Notes: Backed by collateral, typically a mortgage or deed of trust.
• Unsecured Notes: No collateral backing; merely a promise to pay, like credit card debt.

Components of a Note

• Purchase price and down payment.
• Remaining balance and loan term.
• Interest rate and payment terms.

Creating a Note

• Often created by the buyer, transaction coordinator, attorney, or title company.
• Sellers rarely create notes themselves.

Selling Notes

• Sellers can sell notes to get cash immediately.
• Notes can be sold to other investors or organizations desiring steady cash flow.
• Examples include pension funds buying notes for long-term returns.

Using Notes in Investments

• Creating Cash Flow: Buy at a lower price, sell at a higher price, and cash flow from interest.
• Note Buyers: Investors who prefer cash flow without managing properties.

Strategy for Wholesalers

• Wholesalers can facilitate the sale of notes between sellers and buyers, earning a fee.
• No need for credit or extensive financial background to be a middleman in note transactions.

Practical Example

• Pace uses notes to leverage financing in real estate deals.
• Notes provide security for private money lenders in real estate investments.

Conclusion

• Notes are versatile financial instruments in real estate.
• Upcoming part two will include detailed stories of note deals.
• Encouragement to learn about creative finance and consider joining mentorship programs.