Paper Power Note Investing. Module 1 An Overview of Commercial Property & Paper

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1 Paper Power Note Investing Module 1 An Overview of Commercial Property & Paper

2 Mary L. Wife, Mom, and RE Investor Zero Down - $19K Per Month Found w/ Hard Money Lender Paid $1.1 M Investor IRR 42% ARV=$2.2MM Monthly Cash - $19K Up Front Money AND Owns 20% Mary Suzanne L. Burleson, TX

3 Lane Foreclosure Track exceeds $70b in Q4 (Up $20 Billion) The volume of pre-foreclosure properties increased $20 Billion in quarter-to-quarter reporting. This means that we will see additional REO properties coming to market in the first half of 2012 as the properties make their way through default process and auction. Additionally the Lane REO Index, which measures the aggregate REO inventories has risen to 186.5, a 20% increase in the 4 th quarter. The breakdown shows that residential properties are remaining flat, while land, construction and commercial properties are rising in inventories.

4 Keys to the Proverbial Vault

5 Here s the Proof The Business Insider "The latest read from Fitch indicates continued worsening, in November, across a range of commercial real estate types" The Philadelphia Inquirer "Of the $3.5 trillion in outstanding commercial debt, an estimated $535 billion will mature over the next two years" mercial_real_estate_facing_worse_days.html The New York Times "As many as 65 percent of commercial mortgages maturing over the next few years are unlikely to qualify for refinancing because of the drop in values and new stricter underwriting standards

6 Tonight the Overview How to Find GOOD Deals (not the junk that is splattered all over the Net) How to Gather Specific Information (and Decipher What it Means) How to Analyze that Information (Calculating Investor Returns) Deal Structuring (funding) Closing (Putting it all Together & Protecting the Cash Flow) PaperPowerNoteInvesting.com/Upcoming-Coaching

7 3 Parts to Commercial Paper 1. Great Profits Optioning Performing Notes (Pretty Paper) 2.Banks Woes = Your Payday (Ugly Paper) 3. Market Needs Creativity (Creating Paper) NONE of Your Money or Credit Do It Anywhere No Licensing Required

8 Sam & Barbara Sam Seller Barbara Buyer

9 Sam Finances Barbara Sam Sells Property Carries Paper Becomes Larry Lender Barbara Buyer Sam Seller Or Larry Lender

10 Sam Sells Note to Investor Sam/Larry Sells Note - Exchanges Cash Flow For Cash Note Investor Larry Lender

11 POINTS TO REMEMBER Barbara Pays New Buyer Monthly Payment Doesn t Change Terms Don t Change

12 Why Would Sam Sell Paper?

13 How Banks Operate Lender Secures Line of Credit Uses Credit Line to Make Loans Lenders Borrow Money from Other Banks They Use That Money to Make Loans Each Loan DEBITS the Line of Credit Each Loan CREDITS the Assets Secured by LOC Sells Loans Create Profit Replace Funds in Credit Line (Liquidity of Capital

14 Why Would Sam Sell Paper? Note is Non-Performing Regulators Lump Sum Now or Small Amounts Over Time Needs Cash to Solve a Problem In all Cases: TVM applies

15 Why Would Note Investor Buy? Paying Less Than Face Value Increases Yield Buy to Invest for High Return (performing) To Control the Property (NPN) Note must be collateralized by Real Estate!

16 Feeding Your Ego? Equity is Already Gone

17 Distressed Asset or Distressed Debt?? Distressed Asset Physical Condition of Property is Distressed Distressed Financing Note is Slow, or Non- Performing

18 Distressed Wallet

19 Pretty Commercial Paper Existing Performing Notes Buy from Private Sellers Only Buy at High Yields / Significant Discounts Buy Portions of Notes (partials, splits, etc.) How to Make Money with Pretty Paper Trading Existing Performing Notes with OPM Institutional Investors Investing for High Double Digit Deals

20 Seller s Motivation to Sell Pretty Paper Time Value of Money (TVM) Why would the seller take a discount? Wants Cash Now Instead of Long Term Income Trouble Collecting Payments Needs Money for Emergency Needs Money for Project or Other Investment Cash is King in Today s Market Pending Balloon Payment

21 Distressed Debt Performing Note Note had $300K Balloon Due in 4 Months Seller Wanted to Sell Entire Note Restructured EXTENDED Balloon 84 Months Purchased Accordingly BENEFITS: No Refinance Cost To Buyer Seller Got Most of His Money Now We Got a Great Investment

22 Ugly Commercial Paper Existing Non-Performing Notes Alternatives to Short Sales & Foreclosure Work with Secondary Steep Discount Making Money with Ugly Paper Trading Non-Performing Pools Workout for High Yields only on Term Defaults Create Your Own REOs

23 Bank s Motivation to Sell Why would the bank sell the note/notes? 12+ months of interest on the money loaned out Warehouse Line / Liquidity of Capital Lost profit revenue from sale of note Don t Want Foreclosure on Their Books Accrued Taxes Property Damage Repair Force Placed Insurance REGULATORS!

24 Fort Worth Happening Now Note UPB: $5,000,000 Current Value: $4,500,000 Current Occ: 41% Pro Forma Occ: 88% Pro Forma Value $6,000,000 Fort Worth, TX Note Purchase: $2,450,000 Note Flipped: $2,875,000

25 Ways to Make Money 1. Using other people s money, you can flip notes to a Note Investor for a quick cash profit. This includes single PRETTY Notes and pools and singles of UGLY Notes! 2. You can create your own REOs 3. You can flip your deal to an Investor (or Option the Note) 4. You can buy and control real estate, creating both long and short term profit by using UGLY PAPER. 5. You can flip NPNs to others for Cash now, cash later, equity participation, or.all three!!

26 What is Your Ultimate Goal? a) Flipping the Performing Note to Note Investor b) Modifying Term-Distressed Note then Flipping c) Creating Your Own REO - Getting Deed-n-Lieu Reselling the Property d) Flipping the Defaulted Note(s) to Institution (Commercial Properties Only / Pools) e) Flipping NPN to Property Investor f) Sell Outright or Get Less Now and Keep a Portion?

27 Next Up? Finding Great Deals Avoid Joker Brokers Avoid Loop Net Avoid Un-motivated Sellers FIND Don t -Wanters It s Not What YOU want it s What Your Investor Wants!

28 Tonight the Overview How to Find GOOD Deals (not the junk that is splattered all over the Net) How to Gather Specific Information (and Decipher What it Means) How to Analyze that Information (Calculating Investor Returns) Deal Structuring (funding) Closing (Putting it all Together & Protecting the Cash Flow) PaperPowerNoteInvesting.com/Upcoming-Coaching