Secured Income For Life with Note Investing

1. Secured Income For Life with Note Investing www.TheNoteGuys.com Ellis San Jose Ellis@thenoteguys.com Gerald Lemoine GL@thenoteguys.com Office: (310) 414-9757

2. Agenda • Who we are & What to expect tonight • Why notes? Goals & Strategies • What are notes? • How we buy & evaluate notes • Typical yields • Managing notes • Pitfalls • Exit strategies & Case Studies

3. Ellis San Jose – Investing & Work Experience • Influences: Father & Mother: Retired Navy and Housekeeper to Real Estate Investors • Courthouse Steps: Managing rental property • My First Solo Investment • “Bud Fox vs. My Dad” Wall St. is calling • Bruce Norris wake up call • Full-time leap of faith • Notes: The Beginning

4. Gerald Lemoine • Influences - my father - entrepreneur • Work Experience • Project Manager – General Contractor • Steamboat Springs, CO - land development • California Foreclosures • How I got started in Notes • Ward Hanigan reunion • Buying REO’s from lenders

5. What We Specialize In…. • 1st Position and Juniors • Deeply Discounted Notes • Non- Performing • Re-performing • BK 13 • We Fix Damaged Goods and Improve Value • Think of Us as “Note Rehabbers”

6. How We Do Business? • Happy Happy Notes - Happy if they pay - Happy if they don’t • Happy Happy Borrowers & Investors • We have flexibility to modify payments, loan balances • We are the lending committee

7. What Are Notes? • Note: • a contract for a payment or series of payments. • Categories: • Unsecured- no collateral attached • Secured (cars, land, equipment, house)

8. What is a Trust Deed/Mortgage? • Backed by collateral (Real Property) • Secured Investment • Recorded document on the public record • When you buy a Trust Deed: • “YOU ARE THE BANK” • The security for the note (contract)

9. Amortization: Portion of the principal paid with each payment • Term: How many payments • Face value: Original loan amount • Rate: Contracted interest rate • BPO: Brokers price opinion of value • ITV%: Investment to value • UPB: Unpaid balance Terminology

10. Terminology • Discount: Percentage under face amount • Yield %: Annual rate of return of investment expressed in % • Performing: Paying as agreed • Non-performing: Not paying at all • Re-performing: Re-establishing payments • Priority: Determines order of payment in liquidation (1st, 2nd, 3rd…)

13. Two Common Questions • Why would banks sell? • Clear portfolio of poor or non-performing notes • Raise capital • Why would Note Funds sell? • Buy pools of $100 million or more • Primary model is to liquidate property • Not interested in long term hold • Sell to investor is last choice

14. How to evaluate notes? • Purpose for buying • Buy and Hold for Yield • Rehab and Flip • Broker to other investors

15. How to evaluate notes? • Types of notes • Price range - inexpensive to expensive • Penny Stocks to Blue Chip - quality • Nationwide vs. Local - location • Borrowers ability to pay? • Performing or Non-performing • Vacant or occupied • Chapter 13 BK 

16. Lafayette, LA

17. Redding, CA

18. How to evaluate notes? • Primary model • Owner occupied, source of income, desire to stay • This results in a lower risk investment • Buy multiple notes in low to medium price range • BK 13 – payment deducted from paycheck • Performing or non-performing • Loan modification to help borrower make payments 

19. How to purchase notes? • Due Diligence • Value – Zillow, Dataquick, Epraisal, Google • Best indication of value – Local Realtor • Title search • Taxes – could be $10,000 plus • Building Dept – Code violations • Assessor web site – additions, remodels

20. How to purchase notes? • Calculating offer price

21. Provide Cash Flow & Increase Net Worth • Note Portfolio • Case Study • Long term Investment • Risk • Investing in IRA/HSA

22. Managing Re-performing Notes: An Example Portfolio

23. Provide Cash Flow & Increase Net Worth • Case Studies • Fix & Flip - Ontario, CA • Seller Financing - West Newton, PA • Cash Flow – Crutcher /Dayton, OH

24. Ontario, CA Sold July 2009 Note Purchase $155,000 Repairs $ 25,000 Sold $218,000 Net profit $ 24,000 Total time 77 days

25. West Newton, PASold Aug. 2010 Purchased in August 2009 $19,000 Cost of rehab, etc. $ 8,000 Total invested $27,000 Received Payments ($ 4,000) Net Investment $23,000 Sold with Seller financing $43,000 Down payment $5,000 Total financed $38,000 Payments are $450/mo for 125 months @ 8% interest rate Resulting Yield 24.93%

26. Dayton, OH Note Purchase $ 16,500 UPB $ 50,043 Monthly pmnt $ 516 Maturity date 10/2036 Yield 37% Performing by Nov. ‘10

27. How to provide CF & increase NW? • Long-term Investment • As underlying asset appreciates value of note increases. • Note balance is decreasing due to amortization. • Investor capital returned in 50 months with payment at $1,500/mo. • See following chart showing appreciation, reduction of note balance (UPB) and return of capital.

29. Provide Cash Flow and Increase Net Worth • Manage Risk • Basket of notes – like mutual fund • Individual notes – one goes bad, may take months/years to recover investment • Investor risk tolerance - buying singles or partials? • Investor skill level – manage notes?

30. Pitfalls • Owner may use BK as a delaying tactic • Under estimate repairs • Over estimate value • Forensic loan audit

31. What’s the Market Opportunity? Why Now? • Volume of institutional re-performing paper is ENORMOUS • Choice of notes – Hi Equity vs Low Equity, Low price vs Higher • Expected Yield, Various ways to generate yield • Not just yield – BIG payday down the road • Advantages of investing in IRA’s • Supercharge your portfolio with Partial Note Sales (Leverage) Long Term Investing in Institutional Re- Performing Paper = Positive Cash Flow!