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ACQUIRING AND MANAGING A MORTGAGE NOTE PORTFOLIO
David Campbell, mortgage note investor / broker founder of Hassle-Free Cashflow Investing
Kaaren Hall, president of uDirect IRA Services Amy Sayre, President of August REI, a Residential Loan Servicing Company.
Borrower
Mortgage Servicer
IRA Custodian
Investor
Why mortgage notes?
Passive Income High Cashflow
Protect Equity From Market
Security Simplicity Success
Compounding Effect Of A 10% Note Beats Stock Market Over Any 20 Yr Period
What is a mortgage note?Promise to Pay Secured by Real Estate
AKA - Note and Mortgage AKA - Note and Deed of Trust
AKA - Hard Money Loan AKA - Private Lending AKA - Seller Financing
Profitable If You’re Repaid
PROMISSORY NOTE
I PROMISE TO PAY HOLDER $100 PLUS
10% PER YEAR INTEREST
Profitable If You’re NOT Repaid
DEED OF TRUST OR MORTGAGE
IF I DON’T PAY THE PROMISSORY NOTE YOU CAN FORECLOSE ON MY
REAL ESTATE
Sometimes happier if you are NOT repaid… Loan to [email protected]
Ten Rules For A Hassle-Free Cashflow Mortgage Note (1) lender friendly state like Texas (2) 1st position Deed of Trust (not mortgage) (3) SFR with a min property value of $75K (4) Less than 75% loan to value (5) mortgage payments lower than equivalent rent (6) Borrower debt to income ratio < 45% (7) lender title insurance paid for by borrower (8) professional servicing paid for by borrower (9) professionally underwritten with due diligence available to investor (10) fully amortized no more than 15 years
Texas Is Lender Friendly
No State Income Tax Low Foreclosure Rate < 2%
Lender Friendly Foreclosure Laws: Fast and Low Cost Laws Are Landlord Friendly Cost to Own = Cost to Rent
Upwardly trending population and property values Higher interest rates available
Access to Legal / Rehab / Brokerage Team Destructive acts of a borrower are potentially criminal
https://www.dallasfed.org/microsites/cd/epersp/2010/images/1c1.gif
Less than 2% of mortgages in TX go to foreclosure even during the great recession
http://www.pamallison.com/wp-content/uploads/2013/03/Percent-of-Homes-in-Foreclosure-by-State.jpg
Less than 2% of mortgages in TX go to foreclosure even during the great recession
Case Study: Owner Occupied SFR 9.8% interest rate + 0.5% point to
lender = 10% Yield To Investor
TYPICAL NOTE INVESTMENT OPPORTUNITY
INCOME EQUITY CREDITBorrower payments
less than 45% of gross income & same as rent
DTI < 45%
25% equity x min $75k property value = $18,750
protective equity
Weaker or NO credit borrower means higher interest rate for lender
14
15
SFR Construction Loans - Dallas, TX $95,000 10% Interest Rate $160,000 finished value
59% LTV
Note Buying ProcessPreliminary Review of Opportunity
Ask Preliminary Questions Get Control the Deal
Review Due Diligence Info Invest
Note Servicing
uDirect IRA Services, LLC is not a fiduciary and does not render tax, legal, accounting, investment, or other professional advice. If tax, legal, accounting, investment, or
other similar expert assistance is required, the services of a competent professional should be sought.
How to Self-Direct Your Retirement Savings
What’s the Difference?
• Stocks • Bonds • Mutual Funds • CD’s
Typical IRA
• Rental Property • Notes • Private Stock • LLC’s • Tax Liens • Apartments • Raw Land • Private Lending
Self-Directed IRA
What Are The Limits?
A Self-Directed IRA can invest in anything EXCEPT
• Life Insurance Policies
• Collectibles ‒ Artworks ‒ Coins ‒ Collectible Cars ‒ Antiques ‒ Gems ‒ Stamps ‒ Rugs
What if your funds are with your current employer?Your plan will probably NOT allow you to self-direct
• Must wait until you leave the company ‒ To rollover retirement plan
‒ You can request an “in-service” transfer from your current plan administrator.
Prohibited Transactions (IRS Publication 590)• Borrowing money from the IRA
• Selling property to it.
• Using it as security for a loan.
• Buying property for personal use (present or future) with IRA funds.
Disqualified Person
• Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant).
Qualified Persons
• Aunts & Uncles
• Cousins
• Brothers & Sisters
• Unrelated friends
• Nieces & Nephews
Prohibited Transactions
• Neither you nor any disqualified people may benefit from IRA
• Cannot buy, sell or exchange property between plan and ‒ Self or ‒ Disqualified people
• A disallowed person cannot
provide goods, services or facilities
Self-Directed IRA - Structure
You
Your IRA
Custodian
TPA
Types Of Self-Directed Plans
IRAs
Traditional
Roth
SEP
Simple
Spousal
Inherited
Qualified Plans
401K/ 457/ 403b
Defined Benefit
Profit Sharing
Individual K
Other Plans
Coverdell
Health Savings Account
How Do I Self-Direct?
• Complete an application ‒ Provide copy of driver’s license ‒ Copy of statement
• Fund your account ‒ Annual Contribution ‒ Transfer ‒ Rollover
• Tell us what you want to invest in
For More Information
Kaaren Hall, President uDirect IRA Services, LLC (866) 538-3539 [email protected]
uDirect IRA Services, LLC 2522 Chambers Road, Ste 100
Tustin, CA 92780
Residential Mortgage Loan Servicing
Servicing Your Investment Portfolio
How are the details taken care?
Your loan servicing company setup the note for servicing as per the legal docs and lender’s instructions
How are the escrows handled?The pro-rated taxes (from January 1st –to closing) are sent to your loan servicer. The loan servicer will pay the insurance and the taxes directly.
InsuranceBest Standard: Borrower brings one year policy to closing.
Free and Clear properties Lender listed as Mortgagee or their SDIRAand servicer as Interested Party
My borrower wants to hold their own escrow-Regulation Z currently requires creditors (lender) to establish escrow accounts for higher-priced mortgage loans secured by a first lien on a principal dwelling. The rule implements statutory changes made by the Dodd-Frank Act that lengthen the time for which a mandatory escrow account established for a higher-priced mortgage loan must be maintained. (Five Years or 20% equity)
RESPA AKA (Real Estate Settlement Procedures Act)
How do my borrower know where to pay?Your borrowers receive a welcome call and a welcome packet mailed to them.The welcome packet includes – a welcome letter, payment coupons and information regarding different payment options- online payments, ACH services etc.
Do they receive statements?Your borrowers received monthly statements either via email or regular USPSThe statement including:Principal BalanceInterest RatePayment BreakdownImpound Account & Reserve AccountLate Fee explanationContact phone number and email for lender or Servicer
Sample Statement
1098 and 1099The servicer must provided the borrower/buyer must receive a 1098 for the interest paid for the prior year by January 31.The lender/note holder must receive a 1099 for the prior year for the interest received for the prior year by January 31The 1098 & 1099’s must be reported to the IRS.
How do I receive proceeds?Your loan servicer will direct deposit funds into your bank account or send proceeds to your self directed IRA.
Payments to Self Directed IRA’sServicers will send a check to your self directed IRA (SDIRA) monthly or quarterly as directed. The check will be made out to your SDIRA correctly as per regulatory standards. The payment will include a breakdown for each loan between principal & interest plus the principal balance of the loan.
Payments directly to LenderFunds to lender/note holder are direct deposited.An email is sent to lender letting them know they have funds coming to their bank account. This is called electronic notification of deposit which shows the note, P&I, principal balance and any late fees collected.
Monitoring Notes Lender access online 24/7 Updated at the end of every business dayAll properties listed with the next payment due. Breakdown of each payment shown when payment issued.
43www.hasslefreecashflowinvesting.com/investor-education/
http://www.hasslefreecashflowinvesting.com/video/nuts-and-bolts-of-being-a-private-lender/
http://www.hasslefreecashflowinvesting.com/video/video-investing-and-tax-strategies-for-mortgage-note-investors/
http://www.hasslefreecashflowinvesting.com/investor-education/hassle-free-cashflow-lending-ebook/
http://www.hasslefreecashflowinvesting.com/investment-opportunities/
Kaaren Hall [email protected]
David Campbell [email protected]
Amy Sayre
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ACQUIRING AND MANAGING A MORTGAGE NOTE PORTFOLIO
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