Transcript Make money like a banker

MAKE MONEY LIKE A
BANKER
CAN YOU ADD TO YOUR PERSONAL TREASURE?
HOW DOES THE BANK MAKE MONEY?
• Not the way you’ve been told
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Checking and Savings accounts
Loan money at a higher rate
What kind of spread?
Enough to pay big bonus? Build a skyscraper?
• Velocity -- the new money machine
• Make money on the loan payment
• How?
LOOK AT LOANS
WH A T D O E S A T Y P I C A L L O A N L O O K L I K E ?
DID’JA EVER LOOK AT AN
AMORTIZATION SCHEDULE
• Look at the schedule for a $200,000 mortgage
• How much interest is paid in the first year? ($9933)
• How much principal? ($2951)
• Are not the interest and principal payments a cash stream?
• What is the cash flow worth?
• I want money now
• 90% …………. 80% ..…….. 30%............ 20%
• Depends on the value of the borrower
WHAT CAN A BANK DO WITH CASH
RIGHT NOW?
• You want to make 15% on your money
• Buy the cash flow ($12,884) for $10,951.
• Why would a bank want to do that?
• Capital requirements
• Loan out $109, 510
• Amortization schedule on $109,510?
• How many times can that be done?
• As many as the Federal Reserve lets me.
WHAT IS THE RISK?
• How can this all fall apart?
• The first person in the domino loan doesn’t pay
• Follow on borrowers don’t pay
• Why would they not pay?
• Lost a job
• Asset declined in value
• Can’t sell the asset
HOW CAN YOU MAKE
MONEY?
WI L L A B A N K S E L L Y O U N O T E S ?
WILL A BANK SELL YOU NOTES?
• Sure will
• $10,000,000 is considered a mini-bulk buy
• Got $10MM? There are people who do.
• What does the bulk buyer purchase?
• Face value of the note – range?
• Thousands of notes – which are good notes?
• Would you pay someone to analyze the note?
WHAT KIND OF NOTES ARE IN THE
BULK PACKAGE?
• Will the bank sell its best notes? Yes
• Will the bank sell its worst notes? Yes
• Performing notes
• The borrower is making the monthly payments as of today
• Don’t know if they will make the payment next month
• Non-Performing notes
• Borrower is delinquent for 90 days or more.
• Usually a lot more
MORE NOTE DISTINCTIONS
• Secured notes
• An asset (house, commercial property, etc.) secures the
loan.
• Paperwork is correctly recorded
• Secured notes cost more
• Unsecured Notes
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Typically credit card debt
Your promise to pay, no one will take the purchase away
Cheaper
Zombie debt is the cheapest – 3 dubs
SECURED DEBT ONLY
O R G A N I Z E D T O D E A L WI T H I T
SECURED NOTES
• Performing –vs- Non-Performing
• Non-performing is cheaper
• First or Second Lien
• Second Lien is cheaper
• We like seconds for residential property
• Owner occupied property
• Demographics
• Equity
• Secured debt does not go away
RISKS WITH SECURED DEBT
• Foreclosure
• Can’t sell the asset for market value
• Bad analysis
• Can’t reach agreement on new terms
HOW CAN YOU
PARTICIPATE?
NOT A QUESTION OF HOW MUCH
– MORE A QUESTION OF WHEN
INVEST TO SUPPLEMENT YOUR
EXISTING INCOME
• Invest today
• Expect first payment in 30 days
• Geared to fixed income situations
• Recommend performing notes
• Borrower is paying
• Borrower has a payment history
• Lower interest rate
WAIT A YEAR
DON’T NEED INCOME TODAY
• Invest today
• Pay out in one year
• Geared to short term saving considerations
• Recommend non-performing secured note
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Higher interest rate
Status updates on progress
Might not get settled in a year
Bad note
LONG TERM INVESTMENT
• Invest today
• Payout two years and beyond
• Geared for long term saving
• Recommend non-performing second or first notes
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Higher interest rates
Compounding rates
Increased loss of value
Money is tied up long term
OWNING A NOTE
RESPONSIBILITIES
RESPONSIBILITIES
• Own an asset –> action required
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Send out a payment invoice with statement
Send the check to your account
Verify they are making their payments
Must report interest payments to borrower
Form 1098 at tax time
• Servicing costs $15.00 per month.
LEVEL OF INTEREST?
• Interested
• Not today
• Ready to commit
• Keep me on the mailing list
• Not interested at all