Investor · Nevada, MO · Member since 2013 · 70 posts · 5 votes
Forgive me if I've posted this in the wrong forum. I'm reading R. Mike Weese's book 'Janitor to Multi-Millionaire" and I'm trying to wrap my head around the concept of him "...'creating' a 2nd note and trust deed...in the amount of $60,000." to be then used as a part of a down payment for a larger purchase.
In context he 'created' this second note and trust deed from a collection of properties that he owned and was renting. If it's a second note that means the first note and deed of trust was being held by whomever sold him the collection of properties - right? How can he make a second note and then have someone else hold a deed of trust on the same property? Was he in essence loaning himself the equity that he had in the collection of properties to use in helping him purchase the larger property?
I know this is probably a 'stupid' question for many but I'm not used to thinking like this and I'm trying to understand the concept and learn it's application. Thanks in advance!
So he DID 'loan' the money to himself in the form of a 'loan obligation' (note)?
Gary,
To echo what Ellis said above, he borrowed more money and used the property as a collateral. Say he owes $100k (1st loan) on a property that's worth $200k. He went to the bank and asked for a $50k 2nd loan. Basically, he increased his leverage on the property. So his monthly mortgage payment obligation would also increase because he has to service two loans instead of one.
You can have as many loans on the house as you want, or as the lenders will loan. Btw, Rich Weese also posts on here so you may want to connect with him and ask as many specific questions as you would answer.
Specialist · Westlake Village, CA · Member since 2010 · 1k+ posts · 781 votes
13y
It sounds like he created a loan obligation on a property he owned & then used it in lieu of cash as a down payment.
The relationship between a note (promise to pay) & the Deed of Trust (security or collateral)
You can have more than one loan or (Deed of Trust) on a property. Just like how you can have a 1st mtg with Wells Fargo & a 2nd Mtg Home equity line of credit.
In essence he is using more leverage on his existing portfolio rather than using cash.
@Gary Kurtz Not a stupid question at all. I hope I explained that clearly
So he DID 'loan' the money to himself in the form of a 'loan obligation' (note)?
Gary,
To echo what Ellis said above, he borrowed more money and used the property as a collateral. Say he owes $100k (1st loan) on a property that's worth $200k. He went to the bank and asked for a $50k 2nd loan. Basically, he increased his leverage on the property. So his monthly mortgage payment obligation would also increase because he has to service two loans instead of one.
You can have as many loans on the house as you want, or as the lenders will loan. Btw, Rich Weese also posts on here so you may want to connect with him and ask as many specific questions as you would answer.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
He is saying that he found someone (supposedly) that was willing to take a second mortgage on a different property he already owned, in lieu of a down payment. This idea would hinge on 1) How many properties do you already have with equity, and 2) finding someone willing to take a second mortgage on your other property, in lieu of a cash down payment.
May sound good in Guru Land, but I don't see it working consistently in the real world.
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
13y
Hi Gary,
Thanks for purchasing my Book and I hope it is motivating your thinking process. That is what it was intended for. All proceeds go to the Alzheimers Association. IMO, there is NO single strategy that will work all the time. The example I gave was one of a handful I used in the same manner. It worked great, but there were also other methods that I found easier to deal with-like simple assumption of FHA and VA loans with zero funds out of my pocket. I don't recall whether I covered that in my Book or not.
Thanks to Ellis and Minh for chiming in and explaining very well what I did.
Wayne Brooks-your comment of "supposedly" I did this is the main reason I don't post on BP much any more. I really don't need the silly insinuations that you made.
I need to correct one thing about this transaction. The seller, Fred Viega asked for 2 notes-one for 20K and one for 40K. He wanted the flexibility to sell or use either one and preferred 2 amounts.
These notes were used as a part of the total downpayment and the seller was more interested in bigger fish to fry. He had built these 2 buildings and 2 more next door with loans from Metropolitan Life Insurance company. He would be able to convert these to permanent financing when the building reached a certain level of occupancy. He would receive a significant amount from the new loans and wanted to rent up the building as quick as possible. The 60K from my notes was a small amount and he could keep or use the notes in the same manner I did.
I think there was another chapter on Notes being used as cash at a discounted rate. I haven't used that method in a long time. Both these methods would work better when the economy and real estate market is slow. Be patient. Those times are down the street-just not sure of the # of blocks down the street!
Gary- where is Nevada, MO? Wifey and I will be in Branson for a week starting friday. I'd be more than happy to get with you and answer any other questions you might have. Rich
p.s. Sorry I was slow to reply. Enjoyed a sand dunes/lake combination with 3 of my kids and 8 of my grand kids......
Investor · Nevada, MO · Member since 2013 · 70 posts · 5 votes
13y
@Rich Weese , Thank you for your kind reply. I am totally enjoying your book. I stopped short at the "Mexican haciendas" because I wanted to understand what you had done on that deal before I read on...now I can continue! I have so much to learn and I appreciate being able to ask questions and get answers.
Nevada is about 3 hours northwest of Branson (north of Joplin about an hour). Thank you for your kind offer to visit with me but I would never impose on family time and I am pretty well 'green' at this and would more than likely embarrass myself asking you newbie questions. I'm just honored that you posted on the thread! Thanks again!
@Wayne Brooks makes sense. My guess is that he really did it and probably had a good reason for doing it. We may never know. Thanks.
Gary,
There's nothing magic about creating a "note" and a trust deed. Those two things are created when there's a loan involved. I have no doubt he did it. There's always a time and a place for creative deals. Each circumstance is unique and different.
I've always wanted to prove my dad wrong about the use of credit cards. Guess what, I bought two houses in the recent years on credit cards. Yes, 100% financed with OPM. One house was $158k, and one was $440k. They're now worth $300k and $650k, respectively. Sometimes they may come across as guru's stuff, but they can be done. They're not as creative as people made them out to be. Yes, the credit cards were paid off before the promotional period ended.
Hey @Rich Weese you should stop in once in a while, we have missed you.
BTW why not take a trip up north sometime?
Jeff,
Portland, OR is beautiful. People are very polite and better dressed than my area in my opinion. I didn't realize how impolite the Silicon Valley people are until I visited Portland. Portland might be a little too cold for Rich's taste.
I agree with Jeff. What I have learned in the recent years was that it's not what you say, but it's how you say it. Some individuals are not good at delivering their message. You shouldn't let that bother you. Regardless of what you do or say, 50% of the people will disagree with you, or say it can't be done. Just let it go and move on.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
@Gary Kurtz I've done this many times with properties with equity, 1st and 2nds. It keeps the subject property open for construction or rehab funding. Lenders don't make thirds.
Not really guru stuff, it is creative using your equity held to leverage other deals. I've used this a few times in commercial transactions as well, when a buyer couldn't swing the full down payment and used a second on their home or other property, including inventory, fixtures and other assets.
As Rich mentioned (hi Rich) each deal is different but he could have done two amounts of principal under one note and deed of trust. This is handy with installment sales in some situations like that Rich mentioned.
Equity notes with a deed of trust must be more than 5K in MO, Gary and other states have other lien amounts. The SAFE Act also applies now if you're encumbering residential property, the note does not have to be in connection with a sale transaction of the encumbered property, "any note". :)
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
13y
Jeff S- I peek in on Bp once in awhile and post very sporadically for various reasons. No reason to go to Portland, but I did spend all summer in Eureka, CA area for the exercise and great weather.
Gary Kurtz- Ask away as you go through the Book. I REALLY did do all those things.....
Minh- Good job on thje credit cards. As I stated, there are tons of options to win with RE. Most people just don't "expand their vision and widen their horizon". ( I used that same statement many times in my presentation at the BP Summit.)
Bill Gulley- I did have 2 notes secured by a single TD. It wasn't because I limited notes to firsts and seconds. I had 3rds and 4ths on some large apt buildings I sold. I took my commission as a note so the deal wouldn't require as much cash. I think I covered commissions in my Book also. It was the main reason I was able to retire quickly. I remember having 1.6 million in notes at 9-12% 35 years ago. Approximately 160K in interest without walking out the door. It was a sweet deal. That was a lot of money back then.
P.S. Wifey and I fly into your city friday for a Branson trip.
I also wanted to thank those that sent personal e-mails to me about my comment about "supposedly" I did these things. Thank you.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
Hey Rich, I didn't recognize your name referenced in the original post. I've always enjoyed your post. I'm sure you'll agree there's a lot of hocus pocus REI "strategies" out there, being sold. Remember the guys promoting the use of zero coupon bonds as collateral, instead of the property being bought? Nothing was pointed at you. From "supposedly".
Bill Gulley- I did have 2 notes secured by a single TD. It wasn't because I limited notes to firsts and seconds. I had 3rds and 4ths on some large apt buildings I sold. I took my commission as a note so the deal wouldn't require as much cash. I think I covered commissions in my Book also. It was the main reason I was able to retire quickly. I remember having 1.6 million in notes at 9-12% 35 years ago. Approximately 160K in interest without walking out the door. It was a sweet deal. That was a lot of money back then.
P.S. Wifey and I fly into your city friday for a Branson trip."
Rich, yes, most aren't aware that you can have multiple notes under one deed of trust, specifically set out. Each obligation needs to have default provisions tied to the others. Rich, I've not yet seen your book, sorry. I'm sure it's on the up and up too, no doubt.
Would like to meet you guys and swap war stories but I have another obligation, court in Stone County helping a neighbor. My dad, brother and his kids will be at the cabin next week, should have coordinated this better. PM me and I'll give you the scoop on Branson. Might be able to catch you later on the way out. Have a great time :)
1.6 M is a good lick 35 years ago or now, but a million sure doesn't go as far as it use to!
Didn't mean to butt in to your book thread. :)
ps. You'll enjoy the Branson Belle dinner cruise, good show!