More and more often in this real estate environment the Texas Note Company gets asked how to create a note and what are some of the tips we would recommend in the process. In previous articles found on TexasNoteCo.com, the best method for selling a home in a tough market with owner financing was explained. While using owner finance techniques to sell a property are no more difficult than a traditional real estate closing, following a logical and proven plan is the best method for ensuring a successful real estate sale with seller financing.

2. The Gold in the Paper
Robert E Young
Founding Director
Texas Note Company

3. Agenda
• Introduction
• The Promissory Note
• Payor Credit
• Transaction Documentation
• Professionals

4. Robert E Young
• Founding Director of Texas Note Company
• 10 years at Dell - Data Analytics / Freight Audit
• 5 years at Citibank – B&P Loan Department
• Two wonderful Girls Katharine (9) & Caroline (5)
• Hill Elementary Dillo Dad
• Head Coach of the Porcupines (NWA Girls Kickball)

5. Introduction
In order to turn paper into gold, you need to make a commitment to accuracy.
”Bad notes” are a reality in the note business. If you make a commitment to
avoid these errors, you will set yourself apart from other s because
of the accuracy of your notes.

6. The Promissory Note
Creating a Note with Investors in mind
• Down Payment
• Term (Amortization)
• Interest Rate
• Late Payment Clause
• Accounting
• The Details
• Professionals
• Payor Credit
• Appraisal

7. Down Payment
One of the biggest mistakes is to take a small down payment or none at all.
Investors look at this as a BIG ref flag. Why? Because the risk of default is
to high that the buyer will walk away. When times get tough what is
holding them from walking.
Get the largest Down Payment you can get! A 20% down payment decreases
the chance of default, and increases the value of the note. 10% is usually
acceptable to investors, but 20% makes a statement

8. Term (Amortization)
Investors like short amortizations, shorter than 30 years. 10, 15
or 20 years is what investors like.
Balloons?
Have a clear exit strategy if you are going to put a short
term, less than 5 years, balloon in place. Some investors think
Balloons are to complex and will shy away.
WRAPS are a different story – I recommend the balloon be 5
years or less on a WRAP.

9. Interest Rate
The Interest Rate ultimately sets the value of the note. Don’t create a note
with a 4% or 5% interest rate over 30 years then get upset when I offer
you .55 or .60 cents on the dollar. Remember you are not a bank that can
offer low rates.
Experienced investors want a minimum of 9% - 15% return on their money. If
a note has a low interest rate the deeper the discount will be to get the
return wanted.
A low interest rate only benefits the buyer.
9% - 10% is what is recommended

10. Investor wants a 15% Return
Note Amount - $100,000 Note Amount - $100,000
Term – 120 Month Term – 120 Month
Min Payment - $1,161.08 Min Payment - $1,321.51
Interest Rate – 7.0% Interest Rate – 10.0%
$ for Note - $71,967.34 $ for Note - $81,910.79

11. Late Payment Clause
Without a Late Payment provision in the Promissory Note you have no way to
protect yourself (leverage) for financial loss when you have a payor that
has a history of late payments.
Be sure to include a late payment provision that you feel will protect you. The
standard 10% of the principle and interest payment does not always meat
the creators goals. Take into consideration an actual dollar amount of $50
or $75 dollars.
WRAPS – Late Payment Clause

12. Accounting of the Note
When an investor buys a note the most important thing they
want to know is how likely it is the future payments will
keep getting paid. One way to determine this is by the
payment history.
Document when the payments come in, keep cancelled
checks, open a separate bank account so the only activity
in the account pertain to that of the note.
A note servicing company(like The Texas Note Company) can
maintain all the accounting and provide monthly
statements and end of the year IRS reporting.

13. WRAP Late Payment Clause
With a WRAP there are other details to consider when putting a Late Payment
provision in the note, ESPECIALLY if a loan servicing company is involved.
• When does the 1st Lien become late and fee assessed?
• Does the penalty cover the cost of the late payment assessed by the 1st
lien lender?
Most lending intuitions (BOA, WF,CITI,GMAC) assess a late payment fee 15
days after the due date, which is at close of business on the 16th of each
month.
Be cognizant of the timeline between your note and that of the 1st lien

14. The Details
Always Run the Numbers of the Note for Accuracy.
After you have run them have someone else do it!
This is where the Gold Is.
An inaccurate note could cost you thousands of dollars!
Insurance
Buyer retain an Insurance Policy

15. Professionals
• Title Companies
• Attorneys
• Loan Servicers – The Texas Note Company is a Loan Servicer
• Insurance Agents
• Real Estate Broker and Agents
Professionals add an extra level of soundness to the Owner
Finance transaction but they make mistakes to. Preferably
use a professional that has experience putting these
transactions together

16. Payor Credit
• The sweet spot for payor Credit to sell an Owner Financed
Note is 600
• Don’t let the 600 intimidate you.
• A good Story can go a long way
• Common Since Questions to determine the Story
– Is the payor a husband and wife who both work?
– How long have they worked there?
– What age group is the payor? 20’s 30’s 40’s 50’s etc….
– Are their taxes and insurance current?
– What type of car does the payor drive?

17. Documentation
The secondary market trades ORIGINAL documents.
The ORIGINAL Promissory Note needs to be put in a
SAFE, FINDABLE place. Without it you have nothing
to sell.
The other ORIGINAL document that you will need at
closing is the Mortgagee Title Policy
While you are at it put the Deed of Trust in that SAFE
place as well.