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Hello. Welcome to the Paperstac Podcast. I am Brett Burky and this is Nick. Nick. Ligamaro. I don't even know how to say my name sometimes, man. It's so damn tongue twisty. Say it, say it, say it. Ligamaro. Ligamaro. Ligamaro. I always kind of sort it out. I always go like, Ligamaro. I say that too sometimes. I say it fast. Really? Ligamaro. Ligamaro. Ligamaro. It's all good, man. And you like when people actually promote it wrong? When you're like, they give you a phone call and they say, Hey, this is Nick. Then I know they don't know who I am. I know it's a solicitation. My wife's last name is Mila Roldava. So she gets a lot of that. So we're here at Node Expo. Yeah, this is live, like people are walking around. It's an action packed place. So we're doing another episode of what is, uh, when was your first node? How'd you purchase it? What got you to the node space? And then how'd you grow since then? What was the So let's start with the easy part. What was the first note purchase? No, so the first, I never, I never purchased the first, I've purchased notes since my first note that I got involved with the note I created, I bought it, I bought, I had bought a property, uh, and I actually created a note because there was equity. In the deal, and I took the equity back in the form of a note with a, with a seller finance buyer. And since 1, 500 notes later, here I am, I still create most of my notes. I do buy notes. We do buy notes, uh, needed, but I learned a long time ago that if you want something done right, you have to do it yourself. Hey, how are you doing? It's all right. All good. It's um, uh, maybe they're giving away some stuff over there. So, in the private note space, it's really. It's really difficult. You know this, right? There's a, there's no systematic process that people follow. There's no blueprint, if you will, on structuring the note. So most, the way this thing, the way it happens is that you have private notes and you have bank notes, right? Bank notes are done, are created very specifically. Uh, because they have all the internal steps and processes in house to do it. All their legal, doc prep, underwriting, servicing, everything. When you're a private note creator, hence a note buyer, you're relying on somebody else's ability to mimic what a bank does. And as a result of that... You end up with a lot of private mortgage notes that do not meet what I would call institutional underwriting guidelines. Right. And so this is where the discount comes in, right? When you look at a note to purchase, you're looking at how do you evaluate a note and determine what it's worth, right? And you're looking for things like, well, was the borrower underwritten correctly? Is the note serviced? Yep. Who's paying for the servicing? What's the coupon rate of the note? All these things have an impact on the value of the note itself. So, I just choose personally, when I can, to write my own note because now I'm creating the note exactly how it wants to be done. Now, is that easy to do? No. It's not easy to do at all. But there's a lot of people that I would call landlords that want to become lean lords, right? They're tired of being the landlord dealing with the tenants and the toilets and trash, and they go, I can still make cash flow by becoming a bank. Okay, so that if they're a landlord, it's easy to convert that over. They understand it. But as a private note investor, Uh, you're sort of at the mercy of whoever created the note to begin with, right? Interesting. So you're saying, so like the first notes you got into, you created? Created them all, yes. And when, when your first minutes, you didn't have a process for it? Hell no. I did them all wrong. I did the first 400, did the first 400 wrong. I call it my six million dollar mistake. And it wasn't that I lost six million dollars. But I lost the opportunity to make an additional 6 million based on UBB because I had to pay the discount to the note buyer because the note wasn't structured properly. So when people ask today, well, what's your, you know, what kind of, what kind of yield do you want? They say, I want 15%. I go, well, why do you want 15%? Well, because I know there's something wrong with the file. I hear this all the time. Yeah. Well, what if there wasn't anything wrong with the file? They go, that's impossible. I go, well, no, it's not impossible because notes are like cars, okay? If I'm going to sell a used car to you, you're going to have to do a lot of due diligence on the car. Did I properly maintain the car? Was the servicing done on the car? Was the car ever in an accident? Was it ever repaired? All that stuff, right? How, how, how much comfort do you have in the ability of that car to perform after you buy it? Whereas if on note, if it's a brand new note, a brand new car, and you go to the dealership to buy that car... What is your confidence level that that car is going to perform for you after you drive it off the lot, right? Yeah, I think you have it. You don't you check the oil on a brand new car? Probably not, right? Do you check the wear and tear on the tires? No, because you assume you already know they're brand new. All the same stuff. So what we want to do Is we just want to create a brand new car, a brand new note from the beginning, because then I don't have to worry about what somebody else did with the file. So, but the problem with that model is that's not what's available to purchase. 95 percent of all the mortgage notes that you can buy are privately created and they're used cars, right? Yeah. So this is a challenge that note buyers have. is, how are they going to evaluate this, especially when it's their first note, this is the biggest challenge. So, under, understanding what that file looks like, what should be in that file, what shouldn't be in that file, all that stuff, we call it our perfect note blueprint. We build our notes that way that we do sell, but more importantly, if you're not going to buy a note from, say, us. And you want to buy it from somebody else, you really need to know what you should be looking for, uh, to buy that, to make the, the correct evaluation on what you're going to offer in the form of the debt. Does that make sense? That makes total sense. So, I mean, what was it that made you realize that you did them wrong? When I got time, when I figured out why do I have to pay a 10, 12 percent discount to buy and sell my notes? Yeah. Why? Because. I had a, I had a friend at the time, this is probably 2012, and he was selling, he worked for a bank, and they, they sold it in a warehouse anyway, they sold it, they, they table funded basically a lot of these notes, so think of Wells Fargo, you go borrow a loan, get a loan. Wells Fargo to lend to you. Wells Fargo turns around and sells that mortgage immediately. Not even, the ink's not even dry yet, to somebody on Wall Street, Hedge Fund, PE Group, whatever. And they're selling this notes that have a 4 percent coupon on them at 105 percent of the UPV. Yeah, and I'm going, and you're telling me, I got a note that's got a 10 percent coupon and you want me to sell it to you for 85, 90 cents on the dollar. What's the difference? There is no difference. The borrower is still underwritten correctly. So I learned that. Um, that it's just how you, it's perception, right? If the note is perceived to be bad from the beginning that you're trying to buy, then you're going to try to buy it at a bigger discount. If the note is perceived to be good from the beginning, you're willing to pay a premium. So that's what Wall Street does. Family office offices do insurance companies. They're not, they're not narrowly as concerned about the yield as they are about the performance because they know that the bank underwrote it correctly. You can't predict the future of how somebody is going to perform on a note, right? But you can assess the risk based on what it is. So, so that's why we create and we sell these notes to recreate, we create the notes and then we sell the note from the very beginning, but we utilize best, best banking and business practices to create that note, how we set up servicing, how we set up underwriting. So at the end of the day, we're mimicking. What Bank of America, Wells Fargo, Chase would do, but in a private environment. How'd you learn that? I've been doing this 23 years. Wow. That's how I learned it. In fact, we sold, the company that I used to have, a private trading note company, we sold to a federally chartered bank. Really? Yeah, back in 2018. And so I learned a lot about what professional institutions look for and what they need and what they buy. Fortunately, we were 85 percent of the way there. So now we do structure and do it a little bit differently. So that's the, that's ultimately the thing. It's just really how do you take a note? Because everything's worth something, right? A 100, 000 note, depending on how it's underwritten now, what the collateral file looks like, it's worth what somebody's willing to pay for it at the day. And not all, I go back to the car analogy, right? You can have two Identical, we're in Texas, Ford F 150 pickup trucks, white, with tan interior, okay, both have 100, 000 miles on them, uh, one is in pristine condition, and one has beat the crap. Which one is worth more money? More than likely, right? Which one do you have more confidence is going to perform for you moving forward? Pristine one. Exactly. Notes are no different, right? So if you have a note that's got, that has horrible underwriting, doesn't have a 1003 application from a borrower, for example, it's self service, all that stuff, those are red flags. I'm not saying that will be a problem, but could be a problem more so than if it was done like a bank. Right. That makes sense. So. That's where we are on all this stuff. So there's plenty of note opportunities to buy out there. It's just really for an in, for a person that's really going into this as a first deal, it's really important that you align yourself with somebody that has the. The capacity and skill sets to understand what should be in that file, in my opinion. Interesting. Okay. So yes, okay. So making sure that you, what's that Eddie Speed saying, bake the cake, you only get one chance to bake the cake, bake the cake, right? Yeah. I ruin all these things, but it's something like that. But it's great, but that's a great, great analogy. And I have not heard Eddie say it, but it's like, if you go bake a cake, it's. It's not only baking the cake, but it's also how you prepare to bake the cake, right? You have the list of the ingredients, right? Well, you don't add the two eggs after you bake it in an oven and put them on top, right? That's not going to be what you're ultimately coming. Actually it wasn't cakes, it was cookies. And the cookies? Chocolate chip cookies, right? Okay. But anyway, if you don't follow the instructions, you don't put that little teaspoon of baking soda in the cookies. Yeah. It looks so irrelevant. But it makes a big difference, right? A half a point on, on underwriting, uh, on, on, on, on, on a note, on a promissory note is a huge difference. Not charging a borrower for the servicing affects the yield on the other side. Big difference. Yeah. Yeah. Not escrowing taxes and insurance and letting the borrower be responsible. Huge difference on the value. So I always go back to the same thing. I go, what would bank of America do? Okay. How would bank of America write that note that I would be buying? Would they, would they allow the borrower to self service? I mean, they would do it themselves. Would they allow you as a borrower to pay your own taxes and insurance? Absolutely not. So why would I want to buy a note from somebody that maybe has done that? Now, I will buy notes like that, but I'm going to have to fix all that. Is that something I want to fix? And even if I don't want to fix it and I'm okay with the borrower, because I've done enough evaluation, I'm just going to pay him. It's a bigger, it's a bigger deduction. It's a bigger discount. Okay? So yeah. Everything's got a value. If all that stuff is done incorrectly, well, I'm still willing to buy that note. But my, my, now my guy had 40 cents on the dollar instead of 95 cents on the dollar. Right. So it's all relative. Okay? I get that. Yeah, if you're out there and you're looking at notes, those are things you need to evaluate. 100%. That's what I would be looking at and that's what I tell people to be looking at because it's only a problem when it becomes a problem. Right? Right. So those things that like, that people should be looking at is like, was this done with RMLO? Was it actually a deed of trust? Yeah, is it a mortgage? Is it a contract for deed? A lot of people write mortgage, uh, write notes using contract for deeds. Never understood it. I under, I do understand it, but why doesn't Bank of America do? Contracts of Deeds. Are we smarter than them? I would think probably not. They don't write contracts of deeds because they don't have to write contracts of deeds because they write the debt correctly from the beginning and they're protected because they have a lien position on the property and if the borrower doesn't perform, they're going to come and solve that problem. So contract for deeds. I don't ever, I never really liked them to begin with Texas. We don't do contract anyway, and there's a reason why. So there's nothing wrong with it. I'm just saying, ask the question why it was done that way and then start doing it. Cause in the, in the note space, we call it scratch and dance, right? We're looking for all the scratch and dance on the note to determine the value. Cause we got, if we got to fix those scratches and dance. Going back to the car analogy, there's, that's a cost, right? If I gotta re underwrite the buyer and restructure it, there's a cost. How does that affect my yield? All those things. At the end of the day, we just don't want a problem. But if a problem does arise, we want to make sure that It's not a problem until it's a problem. I can drive down the freeway right here, a hundred miles an hour without wearing my seatbelt, but like in an accident, I wish I had my seatbelt off. Right. So it's not a problem until it's a problem. So this is the biggest thing that I see with people that want to buy notes. Notes are a great investment strategy. I love, I would never buy Tesla stock, Amazon stock. I would buy a promissory note. All day long, because I have the, I have the property as the collateral on the, on my, my debt that I'm on my, what I bought, you go buy Tesla stock and it goes down 20%. You don't go call Elon Musk going, Hey dude, stock's down, why don't you throw me a couple of Model S's. It don't work that way, right? But they say, well, that's an inherited risk of you buying. The stock, right, or wait, maybe it goes back up. Promissory notes, what I love about it as an alternative investment is that the house, usually a house, secures the investment. So if you have a good underwriting file and you know that the asset has worked more than your debt, then you have a pretty good likelihood to be able to recapture Your investment in the event of a default, that's the bottom line. So we're trying to mitigate risk along the way. And that's why all those things that we've been talking about are all critical components. So in the event of a problem that may arise, you at least have the best chance of remedying the situation. of good underwriting, good paper, good management, servicers, the whole nine yards. So the message is, if you're on this site or looking for notes, make sure that it's structured properly. Yeah, and if you can't find it perfectly structured, because there's a lot of it that's not, then you need to be able to figure out how do you assess the risk relative to, you know, what is the upside gain relative to the downside risk? And that's a personal opinion on it. I don't really care that it's... 40 a month servicing that the borrower's not paying that I have to pay. So I'm making 700 a month. Well, that's personal, right? But it does affect the yield. It comes off your bottom line, right? Here's the other thing about stuff that isn't serviced. I don't know, we see quite as much stuff that isn't serviced as it used to be. I've been doing this a long time, but you know what? Let me tell you something. It might be 40 today to service the note. I can tell you 20 years from now, it's not 40. Yeah. All right. But guess what? Doesn't change. PNI never changes. Big thing, right? Something so small today can magnify to be in something large in the future. That's actually really, that's something to consider. Absolutely. Absolutely. So, um, so 30 years is a long damn time. Now, is the bar going to stay in it for 30 years? Probably not. Likely. Yeah. Is it possible? Yes. Yeah. Probably not. That's interesting. Yeah. Okay. So cool. So like for anybody that's watching this, the main thing to take away is make sure you look at the note and make sure it's structured properly. If you had some advice for like someone that was a new note investor getting in this space, what would be your piece of advice? Just get proper education. I mean, honestly, and make sure you get it from a trusted provider of education. Because I use, uh, I use the bear analogy, right? I don't, I don't have to be fast when I'm getting chased by a bear. I just gotta be faster than you. But faster than you doesn't mean it's fast, right? Right. So I don't have to be, same with education. I don't, they don't, they don't, I don't need to be smart. Smart, I'm just going to be smarter than you if I'm going to provide you some information. Well, if you don't know anything, anything I know is smarter, but is that the best? Probably not. There's a lot of great educators out there that have a really good thing. I say vet whoever you get, you know, we're at Eddie's NodeXpo, one of the most knowledgeable people on the planet that can actually help facilitate that. Um, you know, there's Tracy and Fred, Rui, super smart. We do a little bit of it ourselves at USA Notepro, but you know, really make sure that you know your source of the education and don't be afraid to invest into the education. I get it. Because we have a lot of people that want to buy notes that are in... Self directed IRAs, right? Look, you can, you can buy education in your self directed IRA, become more knowledgeable on how to invest the notes, use that money. It'll be well worth, well worth the investment. Okay, cool. Yeah. And lastly, how can someone find your website? What are you to usanotepro. com. Uh, there's a bunch of information. We got some free stuff on there. Education. Uh, I've been on a lot of podcasts like this. Um, been on stage. Things along those lines. We can help in any way. If you want to sell a note, we can help you with that. If you want to buy a note, we can help you with that as well. You want to create a note, we can help structure that as well. Or if you just want to be a lender. And be a lender on deals that we, we, we create and need funding on, do that as well. It's still a note at the end of the day. The good news is that, when it comes to our side of the fence, uh, We know what we're doing on the note structuring side. It's not cheap, but you get what you pay for it. And at the end of the day, you want to manage a problem, or you just want to get cash flow. From the, from the note that's, that's there. So that's it. I mean, some people like the, some people love the non performance game, right? That's a whole different beasts. Good luck with that job, man. But there's people that love that model, but I would not recommend a non performing note as your first note of the bottle. Oh gosh, no. Performing note, first position, first position, performing note, knowing the source of the creator and the asset. Take some time and learn the process and you guys should be pretty good shape. Cool. Well good stuff. Alright, well I appreciate you coming on. Thanks for having me. This is, uh, good. So, uh, you can say your last name, the, I can go French and go. Is it French? No, it's, it's a hard G It's a, alright, well that's it for this one. And we're gonna go back to being at no expo and the, the crowding, some of the crowd was with us in. The actual shoot itself, so. Yeah, come on through, just pass them through right here. Alrighty. Alright, buddy. See ya. Thanks for having me. Uh huh.