The Paper Source Symposium SO YOU CAN’T “FIND” NOTES TO PURCHASE… April 27-29, 2017 SO YOU CAN’T “FIND” NOTES TO PURCHASE… Presented by Phil Drew April 27-29, 2017 Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 I am Phil Drew, a retired USAF fighter pilot and Brigadier General. I have been a real estate investor since 1961 when I read How I Turned $1,000 into $1,000,000 by William Nickerson, one of few books at that time about Real Estate Investing. After retiring from the USAF in 1988 I became a full time real estate and note investor and started my own REI company and later my own mortgage company. I have originated hundreds of mortgages, including seller held mortgages, sometimes referred to as Owner Take Back (OTB) mortgages. I have originated, bought and sold many notes, using a variety of methods. My wife and I now live in Bethany Beach Delaware, where I am active in my church, the community and serve on various Boards. PHILIP M. DREW BRIGADIER GENERAL, USAF (RET.) The DelREIA Note Coach & Delaware Note Guy Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Disclaimer I am not an attorney, accountant, investment advisor or financial consultant. Before you invest in discounted notes or mortgages please consult your professional advisor. This presentation is for educational purposes only and is based on my own personal and business experience in the field of real estate investing, buying and selling of notes as well as mortgage origination and lending. This information is not intended as legal or specific financial advice but merely the opinion or thoughts of the presenter and may or may not agree with the views of those associated with the Delaware Real Estate Investment Association (DELREIA).  Nothing in this presentation constitutes an offer to sell or the solicitation of an offer to buy a security, nor does this material constitute an offer or solicitation. Past performance of examples used is not indicative of future results, which may vary. The value of investments and the income derived from investments can go down as well as up. Future returns are not guaranteed, and a loss of principal may occur. Opinions expressed are current opinions only as of the date appearing in this material.  DELREIA or I are not responsible for your level of knowledge and education. If you require legal or specific financial assistance please consult your own attorney, financial planner or trustee for legal or financial advice. Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 You are in the note business but YOU CAN’T “FIND” NOTES TO PURCHASE… Are you finding notes, but not as many as you want? Do you know what you are looking for? Are you looking in the right places? Do you hire a consultant? Do you go into a new business? Do you do nothing? Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 I created my own notes!!! Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Advantages: Control Repeat business Know the borrower Access to the property Due diligence is easier Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Disadvantages: You become a loan originator You may need to think outside of the box Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Some types of business loans I have originated: High interest loan with many points Blended interest rate (Example #1) Equity participation loans To a rehabber (Example #2) To a NPN buyer (Example #3) Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Example #1: Blended interest rate Borrower needs $34,000 for a year or less to update property and prepare for refinance Loan terms: 12% interest only for one year & 3 pts. N I/YR PV PMT FV . 12 12% -34,000 $340.00 34,000 Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Example #1: Blended interest rate Borrower needs $34,000 for a year or less to update property and prepare for refinance Loan terms: 12% interest only for one year & 3 pts. N I/YR PV PMT FV . 12% -34,000 $340.00 34,000 12 7.5% -31,000 193.75 31,000 Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Example #1: Blended interest rate Borrower needs $34,000 for a year or less to update property and prepare for refinance Loan terms: 12% interest only for one year & 3 pts. N I/YR PV PMT FV . 12 12% -34,000 $340.00 34,000 12 7.5% -31,000 193.75 31,000 12 58.5% -3,000 146.25 3,000 Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Example #1: Blended interest rate Is it really 58.5% return to the IRA investor? What about the points? What is the ROI when annualized? N I/YR PV PMT FV . 12 12% -34,000 $340.00 34,000 12 7.5% -31,000 193.75 31,000 12 58.5% -3,000 146.25 3,000 1. 117.86% ROI when points applied. 2. 300+% ROI when this return is annualized (loan was for 141 days). Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Example #2: Equity Participation loan (rehabber) Ron the rehabber needs a loan of $130,000 to purchase & reinstate then rehab house Ron will buy the house Subject-to (& reinstate) Loan terms: 50-50 Equity Participation Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Example #2: Equity Participation loan (rehabber) Ron the rehabber needs a loan of $130,000 to purchase & reinstate then rehab house Ron will buy the house Subject-to (& reinstate) Loan terms: 50-50 Equity Participation AMT EQT % . #1 $55k 10 #2 $51K 35 #3 $24K 5 Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Sample Note term: “FOR VALUE RECEIVED, the undersigned hereby promise(s) to pay to the order of XXX, CUSTODIAN FBO ROTH IRA ACCOUNT #YYY, Address, the principal sum of $51,000, together with interest thereon at a minimum rate of 5% per annum, payable at such place or places as the holder hereof may designate from time to time, plus percent of Equity Share of (35%) of the net profit upon sale of the real property which secures this Note…” Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Equity Participation profit defined: “The Equity Share shall be deemed to be that amount of funds available from sale of the Property which exceeds all expenses of sale and settlement, including all obligations and debts payable from the sales proceeds necessary to complete the settlement. Payment of the principal and minimum interest due on this Note shall be deemed part of the debts payable prior to calculation of the Equity Share.” Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Example #2: Equity Participation loan (rehabber) House sold in 91 days for net profit of $97,500 with half being the interest to the investors ($47,500) AMT EQT % Profit . #1 $55k 10 $9,750 #2 $51K 35 $33,250 #3 $24K 5 $4,750 $47,500 Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Example #2: Equity Participation loan (rehabber) House sold in 91 days for net profit of $97,500 with half being the interest to the investors ($47,500) AMT EQT % Profit ROI . #1 $55k 10 $9,750 18% #2 $51K 35 $33,250 65% #3 $24K 5 $4,750 20% $47,500 Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Example #2: Equity Participation loan (rehabber) House sold in 91 days for net profit of $97,500 with half being the interest to the investors ($47,500) AMT EQT % PROFIT ROI ACCOUNT #1 $55k 10 $9,750 18% Phil Drew #2 $51K 35 $33,250 65% Roth IRA #3 $24K 5 $4,750 20% Traditional IRA $47,500 Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Example #3: Equity Participation Loan (NPN ) Wilmington DE NPN 1st Lien Position Contract For Deed NPN Purchase Price $20K Need $6K Workout Costs As is: FMV estimated to be $35,000 or more ARV $124K-$135K We did an $26,000 Equity Participation loan Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Example #3: Equity Participation Loan (NPN ) Borrower needed $26,000 for 1.5 years or less to complete workout or remove CFD occupant AMT EQT % Profit ROI #1 $21k 40 ? #2 $3k 6 ? #3 $2k 4 ? $26k 50% Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Summary: If you can’t find seller financed notes—create your own!! Originate high interest & points Originate blended interest rate notes Originate Equity Participation notes For Rehabbers For NPN note investors Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Questions? Philip M. Drew Phil@AFGmortgage.com Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.

The Paper Source Symposium April 27-29, 2017 Copyright © 2016 Delaware Real Estate Investors Association, LLC. All Rights Reserved.