1. Sándor Lau, Chief Inspiration Officer NotedFinancial.com
Intoxicating Assets: How Defaulted Second Mortgages Helped Me Survive my Landlording Allergy and Invest in Real Estate for the Price of a Used Car
Sándor Lau, Chief Inspiration Officer
NotedFinancial.com

2. Confessions of a Recovering Landlord

3. Bamboo Retreat Eugene, OR
Duplex:
Rent $700/mo/unit
Mortgage, HOA, mgmt.
$1,400/mo

4. Bedlam and Millstone Kansas City, MO
Apartments 29 units:
Rent $15,000/mo
Mortgage $3,000/mo
Repairs, evictions, vacancy, mgmt. $15,000/mo

5. Employed, 28% Homeless Day Job $1,500/mo to Bedlam & Millstone
$1,400/mo to Bamboo Retreat
Not enough for food, car, bills

6. Be the Bank: Real Estate Without Tenants
Landlord>Tenant
Bank>Landlord

7. My First Paper Source 2013

8. The Formula: Invest in discounted non-performing second mortgages behind performing first mortgages on residential property.

9. Make Your Money When You Buy
Discounted real estate: exceptional
Discounted notes: standard
2nds: most discounted

10. Performing first mortgage means borrowers likely have: Capacity Will
Predict the Future:
Performing first mortgage means borrowers likely have:
Capacity
Will

11. Online Underwriting: Credit Report
Title report
Transunion TLO
Netronline.com for tax assessor
Borrower social media

12. Case Study: Suwanee River
Atlanta exurbs, Suwannee, GA
Borrowers paid first mortgage like clockwork
Dark horse, very little information available
We bid appropriate to risk

13. Suwanee River: Numbers
Value: $204,000
1st Mortgage: $178,000 ($26k equity>1st)
2nd Mortgage: $30,000 unpaid principal balance
Our Cost: $5,000 price of used car (17% of UPB, 2.5% of home value, like option or down payment)
Workout: cease & desist letter. Paying $9k $3k down then $170/mo.
Return: ???%. Good enough. Intoxicating asset. Heart on fire. RECOVERING LL.
Win-win. Bank. Homeowner. Investor. Economy.
Example photo only, not borrower’s house

14. Be the Bank, Not the Landlord
No tenants, no toilets, no termites.
Never visit properties
No microwave out window…

15. Think Like an Econ Mediocracy says: Think rationally:
Normal and average is good and right
Uncommon and unusual is bad and wrong (ask a guy with a funny name)
Do you want to be normal and average?
Think rationally:
Mediocracy says risk=reward
Note investing gives asymmetric risk
Leverage cuts both ways, but not equally

16. Emotional Equity > Financial Equity
Motivation:
Most human decisions based on emotion
We deal with humans not econs
House=asset
Home=where your kids and pets live

17. Case Study: Old Macdonald
1 acre lot with house in Fontana, CA
Suburban farm with pigs and chickens
Paying first mortgage like clockwork
Way underwater on first mortgage
Hispanic borrower, limited English

18. Old MacDonald: Numbers
Example photo only, not borrower’s house
Value: $270,000
1st Mortgage: $320,000 ($50k underwater on first)
2nd Mortgage: $83,000 unpaid principal balance (all underwater)
Our Cost: $12,000 price of used car (15% of UPB, 4.4% of home value)
Workout: Payment plan. Resumed scheduled $777/mo. Forgave $80k back interest.
Return: approx. 77%. Emotional Equity>Financial Equity.
Not every note works out like this. Not every one has to.

19. 2nds pull the strings 2nds can FORECLOSE like 1sts
Seconds Come First
2nds pull the strings
2nds can FORECLOSE like 1sts

20. Firsts Come Second 1st can foreclose—if we let them.
We can own property subject to 1st loan.
Not in our name, not on our credit.
Deed of Trust authorization

21. Seconds Fill the Sandwich
Time is on 2nd’s side
Not on landlord’s side
Not on 1st mortgage’s side
Appreciation + principal pay- down benefit 2nd most.
Value
2nd loan
1st loan

22. Pray for BK— Bankruptcy
Bankruptcy gives relief from debt, not entitlement to free house.
We are secured creditors.
Chapter 7: liquidation
Chapter 13: restructuring
Predict future at:

23. Predict Future w/BK

24. Chapter 13 Bankruptcy Lien stripping if 2nd unsecured.
Payments through trustee.
Payment plan 3-5 years. Only 1/3 complete plan.
No completion=no strip.

25. Case Study: Speed Racer
Bradenton, SW FL:
Family in house since 1981
Husband was once race car driver
Yard full of boats and cars
Refused all communication, FL expensive judicial FC
To make this more real, I’m going through case studies for most of the 12 keys. They all have nicknames. 1, because it’s very difficult to memorize loan numbers and 2, because we want to respect our borrowers and their privacy. These are human beings just like all of us.

26. Speed Racer Numbers: Value: $160,000
1st Mortgage: $150,000 ($10k equity>1st)
2nd Mortgage: $104,000 (mostly underwater)
Our Cost: $11,000, price of used car (11% of UPB, 7% of value)
WORKOUT: Borrowers attempted to strip in BK13. Court denied. We agreed to reduce principal to $35k, payments $260/mo, 6.5% int. 20 years. Approx. $5k lawyer bills foreclosure and bankruptcy.
Return: $3,120/yr/$16,000=20% return
Example photo only, not borrower’s house
Beware curse of knowledge.

27. Chapter 7 Bankruptcy
Wipes out unsecured debts, leaving more to pay the mortgage.
No lien stripping, no cram downs.
Bankruptcy relieves personal debt obligation, does not give free house.

28. Example photo only, not borrower’s house
Case Study: The Temple
BORROWER
Home bought 2008 Farmington, UT
Discharged BK7 2011
Paid first mortgage like clockwork
First mortgage hard to track down, not on credit report
No replies to foreclosure correspondence, can’t call them
Borrowers called a week before the auction: from Japan
Example photo only, not borrower’s house

29. The Temple Numbers Value: $630,000 1st Mortgage: $375,000
2nd Mortgage: $100,000
Equity above 1st: $255,000
SCHL cost: $40,000 nice used car (40% of UPB, 6% of home value)
Foreclosure delayed due to issues with title documents
Borrowers wanted to do deed in lieu, takes months
Foreclosed, full payoff $118,000 in two years, neighbor bought at auction

30. Leverage Your Time Are you getting any younger?
What do you fear? What is your purpose?
What’s highest & best use of your time?
Outsource (TapeTechs.com, Fiverr.com, Guru.com)
Employees, interns

31. Leverage your Resources
Leverage capital: credit cards not enough
Bank financing: difficult to underwrite
Passive investors provide capital
Private offerings, limited partnerships, joint ventures
Collateral assignments

32. Collateral Assignment Lending
Our note is collateral for private lender
Similar to private lending on real estate
In event of default, lender steps into our shoes
9% mailbox money
competitive for recovering landlords and stock market refugees

33. Where to Buy Notes? Build relationships of trust Vet sellers (Pacer)
Exchanges show only a fraction of inventory
Demonstrate your reliability

34. Resources: BOOKS: Intoxicating Assets by Sándor Lau (coming never)
Paper Profits by Joshua N. Andrews
Performance Anxiety by Gordon Moss
Turning Distress into Success by Fuquan Bilal
The Art of Investing in Distressed Second Mortgages by Sherman Arnowitz
Memorize the Fair Debt Collection Practices Act
YouTube.com/SandorLau

35. Do Well by Doing Good Compassion is good business
1 completed foreclosure 200 notes
My emotional equity

36. The Future Appreciation slowing down 10 years since the last recession
Current housing market not driven by free-flowing credit
Good bad notes hard to find: I’m still buying, especially OR, WA, CA
Great deals any market (since 1754 BC)

37. Sándor Lau, Chief Inspiration Officer sandor@notedfinancial.com
or go to website for copy of slides, videos