16 in the creative Finance Series this is amazing do you think the people watching this are like guys please go faster or do you guys enjoy us going longer like we're two buddies I'd love to know that yeah make a comment down below I want to know if you guys want these to be seven minute videos do they have do you have the attention span of a Nat or or do you enjoy these 20 30 40 minute videos if you have the attention span of a moth then we'll keep them shorter yeah if you like all of the extra we'll keep going because I think really to talk about these topics 20 30 minutes or even maybe a little less but that's a lot to really go through it the right way I I mean it takes to be honest real estate is a lifelong Endeavor yeah and you're going to continually learn things every single day I look at people that go what is subject two and it's a three minute video on YouTube and I'm like no way it's that's so surface level you got to get a 20 30 minute video and then on top of that you got to get your hands on top of a lead to really truly understand this and we're going to do that on this video because we're talking about notes number 16 in the creative Finance series guys there's a link link below to the playlist if you really want to go through all of these strategies Paces broken down each one we've done an entire video about each of the main creative Finance strategies we'll probably keep adding because there's lots of ways to do these and pace is actually on this video we're going to talk about notes and he's going to actually break down a real live deal that he did using the note as a creative Finance strategy so first of all please for someone watching this right now what is a note when we talk about notes what even is that you remember watching Dumb and Dumber and they were in Aspen and uh Lloyd was on the LA the the stairs of that big nice hotel and he was like handing out money and all this kind of stuff to people and then at the end basically he was handing people IOU sticker stickers like oh I owe you money I owe you money I owe you money oh this is 250 000 you're going to want to keep this 275 thou might want to hang on to that one so those sticky notes is how I remembered what a note was is it's literally an it's a real estate IOU yeah is what it is Jerry and I let's say we create a note meaning Jerry sells me in fact this house you sold me this house you and I have a note between each other that's right actually we have technically three notes we have the sub two a seller finance and a Consulting note yeah we have three notes so go back and watch that video that's a really good it's in the series it's in the playlist yeah it's amazing so Jerry and I have three notes between each other essentially it's three promises to pay about different amounts of money different terms different links Etc and each document is its individual own note or I owe you money and here are the terms Associated let's put that on a document called a note that document also some people call paper some people call um carry the paper carry the note what are some other things that people say I always use paper it's a very s in the industry that's a very common word to use paper it's just referring to that note right so somebody will say hold the paper hold the paper the paper yeah create a note uh create some paper what are some other weird things people say I mean the technical is promissory notes right is what you're often referring to why is it called the promissory note well it's the promise to pay back and the terms involved in that agreement yeah I think it's important toothpaste there's there's secured and unsecured notes and in real estate we often are referring to secured notes or collateralized note and that's where the mortgage or deed of trust comes in that's where it we take the asset the house or the real estate and we attach it to the promissory note as the collateral right and so a lot of times people misunderstand they use they use the wrong terminology everybody knows what they mean but when people say my mortgage yeah they're actually not referring to their mortgage the mortgage is actually the collateral to their note right correct a more a more correct term would be the loan that's referring to the whole thing right but you have the note and then you have Adida trust or a mortgage depending on your state and that's that's that's collateralizing your note but a lot of people have a unsecured note so like let's just say I I came here and said hey Pace I want to buy a boat can you lend me 50 Grand and Pace says yeah here's 50 Grand let's sign a note but Pace doesn't collateralize the boat meaning it's just a open-ended it's a handshake it's like the credit card company that's an unsecured loan interesting because you're promising to pay that money back but you're not attaching collateral to it so if you default they're not taking your real estate they're just the only the only thing they have is a repercussion I guess is essentially they can hit your credit so so yeah an unsecured note you could still sue for non-performance or you could wreck someone's credit right but an unsecured note means there's no asset attached to it whereas with real estate we often that's why real estate is is the most amazing investment you can imagine because you get to attach a hard asset to a note well let's talk about that so when is a when is a note created I've got a couple of little examples and you'll probably have a couple as well is let's say that I have a seller let's make this a little bit bigger so my sellers are big people okay really big people and are these their legs that go like this yes those are their legs okay I guess that's a link yeah here's a skirt okay so this seller let's make sure this is nice no they don't have any legs at all a nice thick boy how about this a nice thick boy so we got this seller and the seller has a house I go to the seller and I say hey seller I want to buy your house but I want you to sell it to me on seller finance so the seller says no problem how do we document this how do we make sure that this is done properly and I go well let's say you're going to buy the house for two hundred thousand dollars and I'm going to give you 10 down okay well let's take the 10 off of that and how much would I then still owe that seller 190. one nine uh one eight one eighty oh yeah ten percent not ten thousand yeah so 180 it's going to say I bought it for 180 the seller's gonna say when how long do of a term do you need I go well seller you know I'm kind of crazy I want it 30 years just like I would go to a bank seller goes okay no problem and I go seller how much interest would you charge me ah five percent perfect there's my note that's it basic terms basic terms there'll be a due date every month and some other things penalty if you're late but that's it but the overall thing is Price Right it the overall thing is purchase price down payment the total amount that is going to be loaned or given as as a note how long I need it for and what my interest rate is that's a no right so when uh when you buy a house on subject two there's already an existing note it's already existing so I'm just taking over somebody's existing note is sub 2 in a seller finance situation I'm having to create a new one a new one now who creates the note typically between these two parties Jerry well you because they're not going to know how to create a note right so either you yourself can create the note or B you can hire a transaction coordinator or C you can hire an attorney or D you can go to like a title or escrow right so the seller is never going to create that note I I have on occasion when sellers really know what seller finance is they go hey do you mind if I have my attorney look at everything I go not a problem you go ahead and do it or if they're an investor so sometimes they may have their own way of doing it okay so a note has now been created and I continue to make that payment when I go and sell this property to my buyer my buyer brings their money to the table and the first thing that gets paid off is my underlying note this gets paid off taken care of and I take whatever the remaining balance is okay that's when the note gets paid off either I paid all the way down um or I sell the property and my buyer pays it off or what can my seller do with that note hey just a quick thanks to one of our sponsors and we'll get right back to the video this video is brought to you by propwire now I get asked all the time how to find motivated seller leads and propwire is simply the best software for finding leads and downloading lists and the best part is it's 100 free and there are no limit to how many leads you can download proper has vacant houses pre-foreclosures absentee owners reos auctions high Equity properties probate tired landlords and more plus custom filters and stack lists so that you can laser target the most motivated sellers in your area plus they have cash buyers and private lenders Nationwide so you can quickly wholesale houses and fund your rehab projects oh and one more thing this is not some seven day free trial that requires a credit card anyone can create a free account with just their email address and start building lists and downloading leads for free right away check it out at joinpropwire.com your seller could say I'll sell this note so the seller created the note now you're saying the seller could go and sell the note not the property the note basically change who the bank is right now the seller's the bank but if they sold the loan to let's say Jerry why would they why would they want to do something like that to cash out of their Loan cash out of their note so like maybe this seller has a wedding to pay for or like um maybe they have a business debt that they want to pay off and they go oh I have this this asset that I've created between pace and myself I'm gonna go sell this who do they sell it to and another investor that wants to own paper own loans I like to think about it this way let's take your scenario here 180 000. when this seller made this note with let's say this is Pace when they made that note they were okay to collect interest and stay in the property not get cash instead get cash flow that that made sense to them they like that idea well six months from now a year from now let's say they're like man I really need cash I really need cash right now well they can't sell the property because who owns the property Pace but they could sell the underlying no vote let's say they sold it at a little bit of a discount for 160. now they just get 160 000 nothing changes for Pace that 180 000 loan is there Pace just makes his payment now to lender B let's say Jerry and nothing changes for you well this this actually happens this actually happened thanks to this people don't know people don't realize this if you guys have had this happen to you on your own mortgages I guarantee everybody has they're gonna be like oh yeah I get a letter and they're saying Servicing Company has changed or whatever it's because your Bank of America or chase or rocket mortgage or Fannie Freddie somebody sold the note to somebody else Quicken Loans does not hold the paper they make the loan and sell it right somebody else buys it see that's the thing that people don't understand is that Quicken Loans rocket mortgage Chase Bank of America Wells Fargo they don't typically hold the note they create the note they get paid fees for creating the note you pay a lenders fee they go we're happy we make the money and then they go sell that off to somebody else now they get their cash back they book another loan that's how most of the lending traditional lending works why can't we do that in the investment world yeah we do all the time yeah that's the cool thing and so the buyer on this who's who's the typical buyer for like an individual no who's that demographic who's that person typically well there are investors that like instead of owning cash flow rentals where now they have to manage a rental property they would prefer to just own paper and get cash flow in the form of loan payments from borrowers so here I love that and that and here's how I look at that exact situation so when people are starting out in real estate let's say that they have a really busy nine to nine to um nine to ten right that's the entrepreneur exactly well the entrepreneur is like five to nine yeah right so let's say that they're like a doctor a lawyer maybe they're in med school they jump into being a doctor and they're making a couple hundred grand a year and they go man I want to get into real estate but I don't want to actually manage real estate what's a really great way for them to get their hands on some cash flow yeah owning notes buying notes so I say for the first couple of years of people's Journey that are passive investors they will invest in notes as their primary source of income because they go I don't have to manage a tenant I don't have to deal with any BS the toilet breaks nobody calls me all I have to do is I receive money on my Note and if I decide to get out I can sell that note to another doctor or lawyer who's also busy as well now at some point they go all right I got my feet wet and they go and they start building a portfolio by maybe buying other rentals and other things and then what I find out is that when they get into their Twilight years probably about 55 to 65 years old guess what they start doing again they start converting their portfolio back into passive notes because they go this portfolio was great it made me a lot of money but man this poor part of my journey was really hectic right you create a lot of notes yeah let me show you how I do it and then because I want to see your big million dollar one that's amazing one but I just did this on a property in um close to Indianapolis North of Indianapolis so I bought this house for sixty thousand then I sell it on a note for ninety thousand oh we got to forget we forget here switch this is this man's this man's Lefty guys so this is we should have been on the other side right-handed dude I didn't know I was going to be holding the cool pencil well now you got the thing be careful of the stand behind you just FYI okay it'll fall on us okay so we're at sixty thousand yep so that's cash I'm out yeah now I turn around and sell it to a retail right uh for ninety thousand and we did a note so we create a seller finance note I'm the seller slash Bank sold it for 90. now my what's what do I have deployed in cash 60 over time I'll get 90 with payments yeah so there's an interest rate I'm making a payment well I don't want my 60 in cash to sit out forever I'm okay for a minute but not forever I'd like to get some of that back so I have a note buyer this is an investor that wants to own paper so in 12 months I'm a couple months in in 12 months and here's why 12 months if I season it out to 12 months meaning if the if I show that the borrower not yeah the borrower has paid payments on time yeah I gotta prove it if they made payments on time for 12 months they'll pay me 90 cents on my Note so what's what would that be 81 000 81 000 so they'll give me 81 000 in cash on my six sorry so I'm twenty one thousand dollars in outlay in 20 in 12 months in 12 months now in the 12 months I'm creating cash flow because they're making a payment to me so my 60 Grand is working earning money yeah and then in a year I sell it I get 81. you get all my 60 back plus 21. nothing changes for them they still have a ninety thousand dollar note that somebody else owns for eighty one thousand yeah so now what are they how are they making money well they picked up that interest rate they picked up that seven percent interest rate on the 90 well they only had 81 out in cash so think about it their their actual interest rate is higher because they only paid 81 to buy a 90 000 note oops oh that's my bad have you guys have you guys ever wondered what a um pension fund does with the money think of think about like all these uh I I deleted oh you deleted yeah sorry I pressed this button right here on accident don't touch that like this boom so um think about like a police pension fund firefighter pension fund City pension fund how are our school teachers receiving a pension where does their money get deployed and invested a lot of times it gets deployed and invested into hedge funds who are going out and buying swaths of notes yeah and they're saying oh this is great Jerry let me see your pen real fast Jerry created a note for 60. okay oh man I made it I made it super fat whoops okay so Jerry created you want a skinnier one yeah that one no you go a year to I don't know what I did but I'm okay with it I can handle there we go okay okay so Jerry basically is 60 000 out of pocket he sells this to somebody for 90 and he creates a note for ninety thousand dollars this big n is a note you then decide hey I'm going to sell this note to somebody else for 81 000 and Jerry's out of the deal I'm out of the deal the 81 comes back fills your pocket back because now you have a hole in your pocket of sixty thousand fills your pocket back up and you walk away with twenty one thousand dollars in cash that's your benefit plus plus cash flow I made in in 12 months but yes right so now the person who now bought that for eighty one thousand dollars what I find is a very typical buyer for this is a police fund a firefighter fund Etc because over the next 30 Years okay the pension fund will receive on that eighty one thousand dollars probably to the tune of 160 to 200 000 in payments for that 81 000 no because you put four percent five percent six percent this was seven percent yeah so seven percent they're they're gonna probably get 250 000 over the term of their 30 year no that's how much that interest will add up huge so how does a pension fund pay all of everybody's retirement for 20 30 years is they come out you guys did if you guys didn't know this this is a an epiphany yeah like a paradigm shift is that these massive companies with billions of dollars are coming in and gobbling up these types of notes you don't see it happening because you you're not hanging out with these people but they're going out and they're buying up this note that Jerry just created for he created it for 90 sold it to them at a discount for eighty one thousand dollars that's pretty amazing yeah and here's a cool strategy guys so if you're a wholesaler I actually wrote a book on how to do this you can get it on um Amazon how to flip notes so let's take this scenario again let's say that you go to a seller finance guy like a pace and he's just a a mom and pop guy Pace isn't a mom and pop guy but let's say you go to an individual investor and he created a seller finance note and he's got and he sold it to a borrower who's making a payment let's go back to those same numbers let's say it's ninety thousand you could approach this you could approach this seller finance seller this investor and say hey if I brought you 81 000 in cash would you sell that note and a lot of them will go man I've been I've been collecting payments it's great but man I kind of would like to have 80 grand in cash that sounds pretty great then you well you can add on a fee you can say if I can find you a buyer to buy out your note will you let me do that now you can either charge the seller a fee or you can go to your note buyer and say hey if I bring you notes for sale will you pay me a fee and a lot of them will they'll pay a finder fee guys this is amazing I've so I don't do this I I have a couple Eric Sage one of my good buddies Nick ligamaro they this is what they do for a full-time living what they do is they go to big hedge funds and they go to big Pension funds and they go to people have billions of dollars to deploy and they go can I just go find you guys notes and they're essentially flipping notes to people this is what you're talking about that's what I'm talking about yeah so you can make a wholesale fee merging a seller finance person with a note buyer and bring those two parties together and charge five thousand ten thousand whatever and you guys are still wondering how do I get started in real estate when there's like you literally just can be the middleman on a deal like this yeah but Jerry these notes aren't laying around on the street like how how do I forget I forget what the stats are but there are there are hundreds of thousands of seller finance notes I would imagine I bet you the numbers in the millions yeah um millions of sellers that have been created yeah um it's interesting so Nick legamaro you should know Nick ligamer you don't know Nick Nick is kind of one of these low-key guys he goes and does notes just like most people in the note world they're very low-key they're not outwardly talking because it's like this amazing world that you don't really have to know a lot to just crush it he there's websites that you can go find these notes on yep and then he goes and builds relationships with big swath buyers that are buying big swaths of these notes and he goes and he'll go to a seller okay this is great too so his last deal he did was about 300 notes all in one package yep so a landlord um about uh so a landlord went out and he built a big portfolio of about 300 units okay all seller finance not yet okay he then goes I'm ready to retire an investor like me or you goes to him and says hey I'd like to buy your 300 units on seller finance this is the guy goes I like that because I can then receive payments over time I can also mitigate my tax burden I can get a higher purchase price and he can get out of managing those units boom so there's benefit benefit benefit to the seller the seller then no longer has 300 units what does he now have a no he has either a no or three 300 individual notes so he goes out and creates 300 individual individual notes with this buyer because these were single families yep okay so 300 notes okay then what ends up happening is somebody like Jerry which you're talking about on your Amazon book Teach as a wholesaler to come to this guy and go hey those 300 notes that you have if I could find a buyer for you is it okay if I if I get a fee he then goes to like a hedge fund or he goes to a big buyer and he essentially goes out and finds finds these notes and Wholesales these notes to to the big buyers how much money does this person in the middle have to have none what what credit they have to have credit right none no credit no nothing just they have to have like job history or tax return no you got to know this person and this person and bring them together that's it that's all you got to do it's crazy to me to think about this because when you guys realize that this is going on all the time Amazon doesn't well at one point Amazon wasn't creating their own products right it was Amazon buying other people's products and bringing two people together and making a wholesale fee that's what they were doing they created a platform you just have to be the Amazon of selling notes you go find the person that's a supplier and then you go and find the buyer what I teach in my book too is you actually don't even have to contract this deal what you can do is you can you can create a broker agreement that hey if I if I bring you two parties together and you agree on terms you agree to pay me x amount or X percent do I have the D license to do that no licensing to do that wow and no contracts so you're not obligated now you're not actually you're not actually Contracting and then wholesaling your contract which is a whole other layer right you're actually just literally a brokering between the note holder and the note buyer and getting paid to do it okay so this is amazing you guys should go check out that book he'll put the link down below here's an wow I just I'm learning new things about this board every day let me see that let me see that so here's another way to use notes okay Jerry creates notes I create notes all the time not even on seller finance situations okay so let's say that I want to go and Fix and Flip This House the house I buy from a wholesaler let's say but maybe it's one of Jerry's students Wholesales me a deal for three hundred thousand dollars which I have bought deals from your students they sell me a deal for 300 how am I going to buy that deal typically and the smart way to buy that you're going to leverage somebody else's money okay so I'm gonna go get eighty percent of that money from a hard money lender and I'm gonna go get 20 of that money from a private money lender which is like my uncle right or maybe from Ben our video guy right Ben maybe comes in as a private money lender he says hey I'd like to make some like a monthly chunk of cash off of your Fix and Flip how do I make sure that that private money lender is secured on that property with a note with a note which is cool so now that note makes Ben feel happy and secure that he gave you 20 of the down payment to not only cover the cost of the purchase but he's also going to help you out with the construction he's secured he's happy and at any point this is interesting too any point Ben goes I need my money right now something popped up he can still sell this note to one of somebody else yeah these notes are convertible transferable they're like Pokemon cards okay yeah you can sell them okay so that's really really cool too here's a here's a way I'm using notes right now on a deal so I've got a deal um I own it I bought it um originally sub two okay it's a property on Sterling you guys have seen this house multiple times I actually used to live in this house before I bought this house from you okay so Sterling I bought it originally for about 400 Grand well today it's now worth seven hundred thousand so a lot of people will ask me Pace where how can I use the equity I have once I buy a sub 2 deal and it builds Equity how can I use that equity do I refinance out the equity and I say yeah you can refinance that the equity if you want but as a creative Finance investor it's like this it's a disease I have I don't ever want to go to the bank right I'm always trying to do things without the bank it's like a fun challenge all the time so it could be a home equity loan you a HELOC you could do a home a home equity line but you're saying no because now you got to go to the bank to get that right so what could I how could I use that three hundred thousand dollars you can create a note you can create a note I can go to Ben the video guy and go Ben I need 300 Grand to go by a a pool of other houses over here I need this 300 Grand I will secure you against this property on Sterling if and I will create a note for you here so I can use that 300 grand for this other property either a down payment right or something else and the reason why remember guys this note the reason why Ben would say yes to this is because the 300 000 note has it's safe and has value because you're attaching a deed of trust or a mortgage depend on your state you're collateralizing the note with the equity in the property right so Ben could say there's collateral protecting my note I could I could foreclose on my Note and get my money back sell the property get my money back okay so notes are powerful anything we want to else we want to cover on notes no I think it's just creating the instrument and then using the instrument like you've done deals where uh you bought seller finance and then you helped the seller sell their note because they want cash right or on the other side any of these type you can wholesale notes to so there's just all the things I have a really specific note story if you want to if we want to do notes part two I could do a story right now break it into a second video that's my best Note deal I've ever done you want to do that let's do it okay cool guys to wrap this up though if you really want to learn creative financing at a whole new level go to pace and jerry.com when you get to that page sign up for a strategy call you're going to get on the phone with paces team they're going to walk you through Paces mentorship program and see if it's a good fit for you and really just kind of go through your goals what you're trying to accomplish like we keep saying in this series over and over and over again you've got to learn how to do these creative deals these are just Tools in your toolbox the more Tools in a toolbox when you go on appointment or when you're looking at a deal it opens up an entire world of opportunity where you can just make money in so many different ways yeah that's how powerful that is so check that out and guys we're going to go to part two yeah of notes yeah