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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 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

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Make money like a banker

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  1. Make money like a banker Can you add to your personal treasure?

  2. How does the bank Make money? • Not the way you’ve been told • 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?

  3. Look at loans What does a typical loan look like?

  4. 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

  5. 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.

  6. 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

  7. How can you make money? Will a bank sell you notes?

  8. 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?

  9. 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

  10. More note distinctions • Secured notes • An asset (house, commercial property, etc.) secures the loan. • Paperwork is correctly recorded • Secured notes cost more • Unsecured Notes • Typically credit card debt • Your promise to pay, no one will take the purchase away • Cheaper • Zombie debt is the cheapest – 3 dubs

  11. Secured Debt Only Organized to deal with it

  12. 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

  13. Risks with Secured Debt • Foreclosure • Can’t sell the asset for market value • Bad analysis • Can’t reach agreement on new terms

  14. How can you participate? Not a question of How much – more a question of When

  15. 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

  16. Wait a yearDon’t need income today • Invest today • Pay out in one year • Geared to short term saving considerations • Recommend non-performing secured note • Higher interest rate • Status updates on progress • Might not get settled in a year • Bad note

  17. Long Term Investment • Invest today • Payout two years and beyond • Geared for long term saving • Recommend non-performing second or first notes • Higher interest rates • Compounding rates • Increased loss of value • Money is tied up long term

  18. Owning a note Responsibilities

  19. Responsibilities • Own an asset –> action required • 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.

  20. Level of Interest? • Interested • Not today • Ready to commit • Keep me on the mailing list • Not interested at all

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