Owner Financing Beyond Traditional Lending: Exploring Unique Properties With FNAC’s Rachel Sims

 

Discover the thriving world of owner financing and how First National Acceptance Company (FNAC) has been a powerhouse in this industry for over 50 years! Join Kevin Shortle as he chats with Rachel Sims, a representative from FNAC, as she shares insights into their longevity, their unique niche in buying first-lien performing notes across all 50 states, and how they continue to grow their business, even reaching a record-breaking $15 million in purchases in a single month. Plus, learn how brokers can partner with FNAC and earn significant fee income by identifying and evaluating quality notes, even without their own capital.

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Listen to the podcast here

 

Owner Financing Beyond Traditional Lending: Exploring Unique Properties With FNAC’s Rachel Sims

Everybody, Kevin here with another episode for you of the show. Thank you, as always, for listening to the show. Don’t forget, you can watch the full video, if you would like to, on my YouTube channel. Just go to YouTube, search my name, Kevin Shortle. Remember, that’s Shortle. You’ll find my YouTube channel. Since you’re there, go ahead and subscribe and like.

That way, I can keep bringing you nice content that I can produce myself, but also to bring special guests. I’ve got another great one for you who I’ll introduce in just a minute. Don’t forget also that we’ve got some upcoming events, so be sure to check out my website. You can go to KevinShortle.com or Learn.KevinShortle.com, and I’ll have more information about any events that we’re coming to.

Some of those might be on Zoom. Some of those might be live and in person, so be sure to check that out if you’re interested in beginning. If you’re looking for a good book, you could also check out my book, Amazon, number one best seller, and you guessed it, it’s called Real Estate Without Renters, so check that out as well.

There’ll also be links and everything else if you want to have me interview somebody on the show, if you have a topic that you would like to talk about, or if you simply want to talk with me and see if this is the right business for you. You certainly can do that, just follow the links and send me an email, or hit my Calendly link, set up a free call, and we’ll get on the phone together and see what we can do. Now, I’d like to get on and talk with our guest here.

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Everybody, please welcome Rachel Sims.

How is everyone?

Good to see you. Now, Rachel and I run into each other from time to time at live events. She’s always out there representing First National Acceptance Company and does a great job out there as well. We finally said we’ve got to get you on the show and chat. Appreciative that you were able to take the time to spend with us on the show.

I’m happy to be here and I’ve really enjoyed listening to your sessions and some of these conferences that we go to. Your book, Real Estate Without Renters, is really great. I’m happy to have been able to get one of those, too.

First National’s Legacy And Unique Lending Model

Super. I’ve got such a deep history with First National that goes way back to when I first started in this business. It’s so neat to see one of the original big buyers out there longer. I think First National, correct me if I’m wrong, just had their 50th anniversary in the industry, which is crazy. They were in the business twenty years before I even got started, which is nuts when you think about it. Tell everybody a little bit more about yourself, and then we’ll talk more about First National.

I have been here for about ten years, going on. Before I came over to the owner financing world, I worked for another bank doing traditional lending. I remember always getting so frustrated with not being able to help borrowers obtain financing due to debt-to-income ratios, or their credit scores, or being self-employed, and things like that. Somebody came and said, “I heard you do really great work, but you want to do more for people.” I’ve always wanted to help people. They mentioned that, how would you feel being able to get an ITIN borrower or somebody who has rocky credit or not that traditional 20% down into their home? I was like, “No way. What are you guys doing? What are you selling? It’s never going to work out. I couldn’t.”

Skeptical.

He was like, “No, this is our business. We do this all the time. I’ve seen some closings. I’ve seen the credit reports on the borrowers that they’re helping, and the homes are beautiful. They’re putting them in great homes. People are buying their homes that they want to be in for the rest of their lives.” It was just such a great opportunity to be here. Now I jumped over here and have been here ever since buying firstly and performing paper for the bank.

Explain the bank a little bit because there’s First National. I don’t believe in the very beginning they were owned by a bank, and maybe I’m a little fuzzy on the history on that, but there is a connection. How does that work with First National? You do lending, but you also buy notes in the secondary market, right?

Yeah. First National Acceptance Company is a subsidiary of First National Bank of America. They’ve been around a little bit longer than the owner financing self, I want to say by like 20 or 30 years. They do, they’re the largest non-QM bank around. We don’t do anything, we’re not your traditional credit card or auto loan bank or anything per se. It’s just real estate.

 

Non-QM everybody for non-qualified mortgages. I know the lingo gets low.

We have a branch, we do direct deposit, do CDs, things like that. From my understanding, it was a few owners, family members, who had created everything. One of the owners, a family members, really were knowledgeable in the owner finance realm. They took this little thing and made it huge, and we’ve been buying ever since.

It did originate out of the lending side of it. It then got into seller financing to fill that void. I would say non-qualified mortgages are one step for housing affordable and opening up credit to more people, and seller financing really just opened it up that much further on it. They started buying private paper, I guess you could say. That’s interesting. I don’t know if I had that part of the puzzle understood there at that point. Now that’s grown to the point where you all have steadily for over 50 years now. Let’s just say, since you’ve been there last ten years, since 8 to 10 million a month, is that pretty accurate worth of this?

Absolutely. We’ve definitely had our hurdles. Hurricanes can be dapper, or we all experienced COVID. Sometimes we have different hurdles to overcome. On average, absolutely 8 to 15. We just hit our record 15 million last month, which is massive for us. I want to say it was about 111 new files and then maybe 10 or 15 backend partial. A backend partial is where we might’ve done a partial originally and then came back around to buy the remaining portion of it.

110. I’m closing on five deals this week, and it’s a lot of work.

Five deals are great for you, though. That’s amazing. Congratulations.

It’s putting them all together, though, getting them boarded and get them all done. I imagine 110 in a month is a monumental task, but that’s pretty amazing because I have people that, how big is this business really? There could be quite a bit, and you guys have been steadily doing that. There’s a proven system, which is probably software-based now, that makes those decisions. In the early days before the software, you had people who were knowledgeable and say, “Look, here are some of the rules over the games of the notes that we’ll buy.”

Exploring Unique & Commercial Property Notes

That created longevity because if you don’t know what you’re doing and you buy notes that aren’t any good, guess what, you’re not around 50 years. There are a lot of formulas and things that you guys have that are probably proprietary, that you look at and evaluate notes all the time. You have your special niche. Tell us a little bit about that. What’s your favorite note that you would buy within that?

We’re firstly in performing. That’s our biggest thing. Because we’ve been around for so much and we do log everything, we log all of our data. We look and see how this credit report pays, how this property type pays, how this LLC runner pays. All of these things. We were able to adjust after a while.

We’ve noticed for us, if it’s maybe a $10,000 or $15,000 note, that might not be something for us anymore, where 10, 20 years ago, that would be something that we had no problem putting out our books. Firstly, in performing is definitely our biggest niche, all 50 states that we’re opening out. My favorite ones are those traditional homes the borrower lives in, but it’s like a yurt or built by tires or just a different, unique property built as opposed to just your normal foundation slab, wood frames, and whatnot.

Those can get fun to see how people create their own homes. We’ve bought a deal. It was a deal of mine. It was so cool. It was just land. The borrower had all this great land, and they wanted to live off their land. They had this massive just so you could see their own farming. On this beautiful big tree, they built their own little house inside the tree. It was so cool to see and to be a part of and to help them be able to like to get their traditional financing.

You guys are doing some unusual notes there. That’s pretty interesting. Those are your favorites. What about the company looking for?

My underwriters are always like, “What are we looking at here?” Good purchaser interviews and proof of payments.

What kind of price range? What would be FNAC’s favorite type of deal?

FNACs are probably your traditional single-family stick-built homes that are easy. If you look at, we will look at this prior sale price. If you see a house that can sell within 30 days in a great neighborhood. Really good credit, good equity on the transaction. That’s the ones they’re looking at. I will say, though, if it’s buildable land, not on desert-type of land, that’s something that they really seem to enjoy too, especially if there’s decent equity.

 

Is that something pretty new? I don’t remember FNAC buying land notes.

Land notes is something business notes will never be a part of, but we will buy the brick and mortar tied to commercial. I think in the last few years, we’ve opened up and seen. I think all of us were assuming that once COVID happened. All these businesses were going to shut down, and nobody was going to re-perform again. Our data shows that so many commercial lenders and out there were still going.

People were still making payments. If it’s a traditional commercial building that could be easily resold into another type of commercial building, like a doctor’s office, dental office, things like that, were definitely, are becoming my under-agers’ favorites. I ended up getting an approval, but it was a hard approval to get to, but I had one property that was like half chicken feed, a little bit of a commercial office space, and then just a community center.

Mixed use.

How do you get comfortable with something like that? All different payers inside them. It’s been fun to overcome certain things and to see so many different things getting put on owner finance.

It's been fun to overcome certain things and to see so many different things put on owner-finance. Click To Tweet

Preferred Price Ranges & Partial Note Purchases

What type of price ranges? Some people might look at that and say, “They’ve got enough money. They could buy.” You said $15 million last month. You could have bought fifteen notes, or you could have bought a lot of notes. Do they prefer certain price ranges of houses, and how much the notes are, or they’re pretty open to that. There’s got to be some pattern if you were to look at it. We like notes where we’re investing $80,000 or $150,000. Where are you at?

The lower, anything under $20,000, probably is not super for us. Anything, if it’s a primary residence, over a million dollars is tough for us, mainly because who’s refinancing, we look at how can this get refinanced, or what’s your neighboring property? Is your neighboring property also a million dollars? You’ll see often enough that just because you have a million-dollar home, you’re not next to a million-dollar home, and you’re not in that market.

Just because you have a million-dollar home, you’re not necessarily in a million-dollar market. Click To Tweet

For us, I would assume probably anywhere from $80,000 to $300,000 is what we really like to see for owner financing homes. When it comes to commercial land, sometimes we prefer not to put out more than maybe $100,000. If the balance is greater than we’re big on partials, we absolutely love that partial aspect to get our feet a little wet and see how it performs for a little bit of time and then have that seller as a partner with us moving forward along.

That’s a great model. I have investors that have a lot of capital, and they’re always “Should I just buy a couple of big notes?” I’m like, “I think you want to diversify. I think you want to have multiple notes going on. I think if you start buying those higher-end notes, it seems like the yields go down a little bit.” There’s more competition from the bigger companies and such.

I like to look at individual notes, and it sounds like that’s what really FNAC does. Even though you’re a big organization buying a lot of notes, you still take the time to run through the due diligence. You’re not like a fund that says, “We got to buy these 50 notes that we hardly know anything about, but we’re guessing and running on averages. We’re going to get this.” You guys really scrutinize each note before you buy it, right?

Yeah, absolutely. We always have an evaluation done on the property, make sure your property is still standing, or we’ll even do a couple of evaluations. We’ve had properties in North Carolina. Unfortunately, a hurricane hit where no one was expecting. We had to go reevaluate the property, make sure it was still standing, or what type of damage was done. Not even just at our own place, but maybe the surrounding areas.

Is somebody going to stay in an area where they cannot get to any type of grocery or any type of anything for miles and miles away? Sometimes we’ll do evaluations and re-evaluations. We always have title work done. We want to know to make sure our investments are safe, and we can deed the property to the borrower once they have paid off that there are no chain of title issues.

The title work will show us a lot of things that we weren’t showing. It can also give our own due diligence. If you’ve had a property where a borrower has been in for ten years or so, and you get that statement and from the title company showing what their taxes look like historically, that can be so great.

You’ll be surprised where, yeah, you have this wonderful home that’s so high dollar, you assume all as well, but then there’s these liens and judgments and back taxes, and that can show a bigger story too than just outside really quick, just glancing at the paper saying, “The paper seems fine.” We have an underwriting process who will also do some extra due diligence.

Sometimes they find things that I’m bummed about that I don’t necessarily see, but it’s great. We have had our model for the last 50 years, and we want to be here continuously for another 50 years. Sometimes we do sign up for things, and tight work or appraisals, or purchaser interviews, can overcome other things. Maybe it’s just not something for us at that time anymore.

Sourcing Inventory: Brokers & Direct Mail Strategies

Some readers might be thinking, “Where do they find all this inventory? I’m not seeing all this inventory.” You guys have a unique way in the industry that goes back with the roots. How can you find all this inventory?

I specifically work with brokers. I rely on my broker relationships so much that it’s a great avenue for me. Sellers who have big companies who might overcome to us. Other than that, we have a retail department who they’re dealing with usually the one or sellers that have 1 or 2 owner finance papers. Going into the county offices is a big thing for us. I know if I were looking to do this on my own, the state of Florida often records just the note right there with the seller’s information. You could always just run your own numbers and mark it out to a letter to the seller right there. Those would be our avenues.

It’s crazy because direct mail, even these days, it’s still works. When I first started in the business, that’s all we did. We used to mine the courthouse, and we would look through microfiche, you’re too young to even know what the heck it is. It would be like a scroll of this recorded paper, a plastic that you’d have to look through to find these deals and pre-computers and stuff.

It was a lot of work just to find somebody who owns a note, and then you had to reach out. Back then, it was direct mail. That’s what you did. There were no cell phones and email, and all that. We had to do it the old-fashioned way. Even more recently, we tried messing around with scrubbing the internet, finding phone numbers.

Once you buy the lead list, scrub, get the phone numbers, send out text, auto-texters, and all. Although it showed promise, what still works is direct mail for a certain reason in this business. It’s just part of its timing, part of your message. You’re still looking at the grassroots, so-called Mom and Pop notes, for the bulk of it.

You’ll absolutely look at other notes. There’s still so much promise there. That’s one avenue, everybody in the note business, everybody says, “How much money do you have to start in the note business?” Of course, everybody’s thinking, “They have to buy a note.” You’ve probably heard enough of my training where I tell people the biggest muscle they need to exercise is the ability to identify a deal.

If you develop that skill and you can look at a note and say, “This is a good note. This is why you don’t necessarily have to have the money because you can bring that to where the money is.” Of course, one of those sources would be First National, which the website for that, by the way, everybody, is just FNACBrokers.com, right?

Yep.

There are forms right there. You can fill them in, and they’ll tell you, “This is how much we’ll pay.” As somebody who’s looking to start in the note business, if you’re a reader or a watcher of this program and you’re going, “How do I start without using my own money?” Maybe you have your own capital, but you don’t want to deploy it yet. No problem. Find notes, and spend your time learning how to find notes. I teach the due diligence process and find a note, put it out there to them.

Of course, the smarter thing might be if somebody’s looking to do that and send out the direct mail campaign and be proactive, should they come to you all first and say, “What are you looking for?” Maybe target what they’re looking at to fit what your needs are. Is that something that you reckon?

If you’re looking to broker over to First National, we do have a new rule of thumb. Again, it’s because we have 50 years of data to see what’s happened and what’s went bad. If you’re looking to a broker and receive a fee that’s something that you don’t own, we have a vetting process. You do have to be an approved broker before we’ll even send you a bid anymore.

That is something that is very new within the last year that’s been taking place. As you said, you’ll go to our website, you can put my reference number down or my name and I’ll get you our broker vetting packet once that’s filled out and approved, which usually takes a week. You’re welcome to send us whatever you want for bids.

I will say if they wanted to give me a quick call and say, “What are you looking for?” There’s no problem with us saying, “Yep, we’re the first lane performing balances should be over that 20,000 mark. We’re open in all those 50 states and fund things like that.” I wouldn’t be able to give any pricing out per se until you’re technically an approved broker now.

That is something new. To get approved, and that’s where I believe I’m going to be on your educator list as well. If people are looking for that, that would probably be helpful. I don’t know what you’re looking for in that vetting process. If you want to share that with us, can you? If you want to, rather have them go to the website and find out, they can do that as well.

I don’t know how much I need to get on the website more to see exactly what it is or how it’s showing, but I know our referral sheet, they could put in Kevin Shortle. That’ll let me know, like that’s somebody that we might know, and the vetting might be okay. All they have to do is just get a document from me, have it filled out, and then my underage is just reviewed to make sure everything’s compliant. What we’re looking for is that there’s no money laundering or somebody’s not going to bring us wrong information just so they can obtain a fee, if that makes sense.

Got to have a real deal, everybody. Got to send it in. By the way, the fee she’s talking about, that’s one of the ways, this is really one of the only ways in our industry, if you make money on a deal that you don’t own. When you think about that, brokering is not as simple as, “I found a deal, you guys take it over from there.” You’ve got to put some effort into it. Check your numbers that you’re getting from people. Have them back it up with some documentation if you need. Treat it like it’s your own deal. Own it. Play a role. Earn your fee.

The Power Of Brokering: Earning Fees In The Note Business

I’m so happy you said that because you’re being made, it’s like how many people say, “These are the terms, give me your quote.” I quote it, and then it has, they see the note, they’re looking at the note when they send it, and then it has nothing to do with the terms they’ve sent. I’m like, “My pricing cannot stand due to you said it was an 8% rate and there’s no interest rate or vice versa or whatever it might be.” You’ve got to take some accountability for what you’re bringing in too. Looking at pay history, confirming those types of things.

You’ve got people who are making good fee income.

We do.

Impressive numbers. I don’t know if you can say anything, but I happen to know that. Somebody could really make a living doing this if they’re doing it the right way.

Our top brokers make well over six figures. They’re doing well. They’re just like you, very similar. They would broker what they can broker, obtain a good chunk of a fee that we don’t regulate. It could be that 6%, whatever you’re looking for to obtain your own marketing, and then payments and whatnot that you want. The smaller ones are the ones that we’re not interested in. They have enough capital that they can put it in their own inventory and then just keep that cycle rolling.

 

If we were just at the DME conference, and there were even people there that I spoke with, are like, “We’re not buying anything because we don’t have enough capital. We’ve bought a couple of notes, and I said, “So what? Do you still know how to find notes? Do you still know how to go through the process?” It’s like keep doing that and bring them somewhere else, and at least make a fee.

You don’t have to go dormant because you don’t have money. I think it’s misunderstood or maybe overlooked a little bit these days, where you’re like I had somebody who goes, “I saw this portfolio and there were like ten notes and I could only afford five of them. I just bought the five.” It’s like, “What’d you do with the rest?” “I couldn’t afford those.” It’s like, “Bring them somewhere.”

Find a partner if you don’t have the time.

You can make fee income off of that. It just makes sense. I think a lot of them just go, “I guess I’ve got to find a financial partner.” It’s like, “Yeah, you could do that where somebody would buy, but you’ve got a financial partner really that’s available every day with you guys.” I don’t know, just making that connection, everybody.

I don’t know why. Sometimes I point it out to people, and they go, “Duh.” They’re almost embarrassed. Like, “Why didn’t I think of that?” Sometimes, somebody just has to point out the obvious to get lost in the paperwork there. That’s impressive. Even today where people can make six figures. By just doing the same thing, finding notes, evaluating those notes, and again, be a part of the transaction. You can make good fees, so treat it like a business.

I’m not just saying, “I found a note on a paper stack, I’m printing it out, and I’m going to send it to you.” It’s like, “No.” That is not what we’re talking about here, folks. Find a note, evaluate it, run through it, verify the numbers, look at the information, treat it like you’re on a deal. When you do it that way also, you’re learning the business. It’s your own note, because guess what? At some point, it will be. Maybe you broke her 3, 4, 5 notes, you got the capital to buy your own. You buy the next one. I think you build good habits, like that makes sense.

We’re here for knowledge, too. We’re happy to go over the title work that we’re seeing or what appraisals are looking at, and things like that. Brokering can definitely get a good feel of all the aspects. What an underwriting question could be, and looking at what the valuation is in title work, too, and how that works on them.

The last time I interviewed somebody from FNAC, it was probably been 3 or 4 years ago. They said, “Probably half of our business is broker, half of it is stuff that we’re doing.” Is that about where you are today?

It’s about the same. I will probably say it’s more like 60/40, 60 retail, 40 brokers. I’m hoping it’s because the brokers that have brokered with us for so long are just able to now put it into their own portfolio. We still see new brokers here and there, which is really great to see.

That’s pretty impressive. Again, it just shows the businesses that there’s more inventory than most people see. That’s one thing that I’m always running into, is just where’s all the inventory? I think part of that is that people do want an easier approach. I get that. Everybody today wants everything instantly right now. “I don’t want to go to the store and pick it up. I’ll just work it out. We want it all now. We want somebody else to do the work.” A little bit of extra effort. You can really tap into some new inventory.

I agree.

Emerging Trends: New Property Types And Geographic Shifts

Again, even in ten years that you’ve been there, you’ve seen ebbs and flows of different types of notes, different positions of the notes, and different quality of notes for various reasons. Right now, what are you seeing as a new wave of where we’re seeing inventory where maybe we hadn’t seen it before?

I will say those property types, like the ones that can be built by tires instead of just the wood or the oddball stuff, is coming up. The bar dominiums, we’re seeing so much more of that. How do you exactly do you classify them as a traditional Stokesville or more like land with value or whatnot that way? Lots of different types of land, vacant land, land that has utilities or non-utilities or that could be farmed land. That’s just been a different avenue.

A lot more notes created by, let’s say, real estate investors in general versus consumers, I’m sure, because I’m seeing a lot of that myself. Meaning a real estate investor is buying property and fixing and reselling it with financing, and that thing.

Especially those ones that have the massive, what are they? When it’s like 300 acres, and then they start subdividing. We’re seeing more of the subdividing happening. Location too also becoming different. We’re seeing more in Hawaii, more in Alaska, more in Washington, all these other places that we haven’t seen before. A lot of those do come through brokers, which is amazing. If somebody is just finding our information online, but we’re open in all 50 states. I think also for us, we have that customer service aspect that will be there until 9:00 PM out of Saturday or whatnot to really help move forward with them too.

I know traditionally the top states were always the Sun Belt, of course, so had Florida, Texas, Arizona, California, all the way up through Washington, and of course, Michigan, and you guys are based there too. One of your offices, so you have a lot more business there also. Recent shifts, maybe Carolina’s seen a lot more growth, or are you noticing?

North Carolina over South Carolina, but North Carolina has jumped up to, I think, one of our top five now. Arizona, Florida are still the leading, with California and whatnot, Michigan. North Carolina has jumped up.

No kidding. Any guesses on why?

I think just more people opening up to the aspect. As you said, with real esters, I’m seeing more real estate agents having that conversation with their sellers or buyers that if some of them so cannot get traditional. If you’re wanting to hold that paper, that is something too that you could do. We’re seeing now more realtors come in the business and brokering notes and whatnot than what we have before ten years ago.

More realtors are now entering the business of brokering notes. Click To Tweet

That I hope continues.

I do too.

The Rising Role Of Real Estate Agents In Note Brokering

I hadn’t seen that. That’s always been the dream. Years ago, when we were looking to expand, I was looking to expand my business. We’re like, “Why don’t we teach real estate agents this, because I have my license and everything else?” For me, it made so much sense where I’m like, “There’s an alternative to just getting bank financing.”

It could never gain traction. I don’t think it was comprehended. That’d be great if more real estate agents realized that, “This is a great viable option. It’s not fly by night paper that was created.” Historically, real estate agents, I could just never get them involved in understanding that. I would love to see if more agents did, because again, if you’re ignorant of something, meaning, you just don’t know how it works.

Your mind goes dismisses it. It’s like, it’s not really a viable option, it’s that note thing. It’s dismissed, but if the education level gets higher and agents start putting that, even if it’s a second or something, the other surprising thing, you may know there’s still 40 to 50 and maybe a more precise number of percent of homes in the US that are owned free and clear.

Nope, I didn’t know that.

It’s a much higher percentage than people would. Most people, if you ask, they’d say 10% but no, it’s like 40% or 50 % are owned free and clear. A lot of those homes, of course, get inherited. When you think about it, my grandparents lived in the same house that they always lived in, and that was owned free and clear. My mom still lives in the house that I grew up in, and that was the whole thing.

Generations mine and younger, they had a tendency to move, and that thing. There are still a lot of homes like that that people inherit. On the one hand, you think, “It’s a windfall.” For many people, it could be. For other people, it’s like, “God, now I’ve got to pay the taxes. I’m going to upkeep it. I’ve got to do this. I’m dealing with tenants.” They recognize that, or you could sell it with financing. It’s like, “I don’t want to carry a note for 30 years.” It’s like, “You don’t have to. You can sell the note and create a good-quality note now.” That’s interesting.

Lots of avenues.

It really could be a better one for some people. I think if done right. I think the industry as far as visually being seen as more legit, raises its legitimacy is really what happened after the crash. When we had the mortgage bust and all of a sudden the government tried to fix it, that didn’t work. You, Wall Street, came in, that didn’t work.

It really came down to individual investors and smaller companies, as such, in this industry that cleaned everything up. I think that got recognized. You had more high-profile authors like Kiyosaki writing about notes as well and mentioning it as equal to stocks, bonds, mutual funds, and notes in real estate. I think it’s elevated it from that. Have you seen that maybe as a wave as well?

Maybe we did it before my time. I haven’t seen so much. I see a lot more new things than I think I would have. I guess disclosures were more big into making sure if you are originating so many that those new disclosures are there, which most of them are Mom and Pop. Usually, we don’t have too many issues that way, though.

The Evolving Quality Of Owner-Financed Notes

Is the quality getting better, or do you see a mixed bag?

I guess it’s who you ask about that. For me, it’s amazing to see COVID. COVID happened, and the fed rates are up and down all the time, adjusting on a weekly basis. In my opinion, I would assume, and just probably because I see it so much. I see so many papers, you would assume that somebody’s got to be a raging, at least an 8% or higher. You’re not going through a bank, you’re doing this on yourself. You should have that extra interest rate.

That’s my opinion, but you’ll see still so many at a 2%, 1%. I have a file happening at 2.75% and I’m just like that they’re not necessarily getting the best down payments. Again, just my own opinion. Sometimes a seller, if they’re saying, “I got $10,000 today.” I’m okay with it. That’s great for you, but $10,000 for a 30-year term, how did they get the $10,000? I asked more questions.

“Is it somebody who just won the lottery and they gave you all their money and now they’re strapped moving forward?” I just look at it that way. I will say, on average, the bank is buying paper. I want to say, I think it’s like 30% equity. The borrowers have 30% equity in their home. That’s like 30% of payments or down payment, not how I sold it this year for this amount, and the next year. Now it’s worth so much.

It’s just the borrower putting in that real equity. I want to say our average interest rates are around six percent that we’re seeing. Sometimes we’ll see the ones that are nine or so. Again, we’re still seeing so many that are low balloons. I think more people are adding those into their transactions or just having them more short-term, as opposed to the third year.

What are your thoughts on balloons? Are they worth it or not worth it? A lot of people used to think it added value.

I think it adds any value.

I always go in skeptical. There’s a balloon in three years. I’m like, “They’re not going to pay it.” I’ll have to refinance it.

People are doing the 40-year terms with a 30-year balloon. I’m like, “What was the point of a balloon if you’re still going to have it out so long?” For me, I think I’m somebody who just watched how COVID changed so many things. I don’t think I could assume anybody is going to pay off a balloon eight years from now. I don’t even know where I would live eight years from now. I don’t know. I’m sure it adds value to an extent, but if you’re adding it on to somebody who doesn’t have any equity and doesn’t have any credit, I don’t see it being a benefit.

I always think the same way. I’m like, “Maybe I’m just too old.” When you’re around it, if you go, “They don’t pay it off. You have to renegotiate anyway.” I’m not basing my yield on the balloon. I’m looking at maybe, maybe not, you scenario, but I try to impact the education on this. I was teaching a class. I just told them, said, “Look, you guys are creating paper. Just create good, sellable paper.

Understand what good, sellable paper is. Just live by that, and it just provides you with more outs. Maybe you keep the note, maybe you sell it down the road.” I try to A credit or A paper down to F paper, and I’m like, “If you’re creating DF paper, guess what your offers are going to be.” It’s pretty simple. Hopefully, we have some impact on the education there, and you guys are doing a little educational. A couple of my clients went to your annual events. Are you guys still planning on doing some of those?

No, we didn’t think we should do it this year, mainly just because we heard Paper Source might come back, which is such a great event to go to. It turned into like another event or something else might be able to come into the line. We’ve been nailing down. We had good feedback in the first few years that we did it. We just thought maybe we should also attend more other conferences too.

All fair. All good. I get it. I’ll stick in the education realm. You guys can stick to buying fifteen million a month. Where can people find out more and look to work with you, and maybe get some more information on how to work with you? Just the FNACBrokers.com, or do you have other websites that we need?

That’s our only website. You’re welcome to reach out to me directly at an email. Just my first name dot last name spelled out, Rachel.Sims@FNBA.com. I’ll make sure to get you over my phone number, but it’s just 517-336-7623. I’m in Michigan. Michigan is the best place to be in the summertime. I’m just going to say that.

It’s not summer there yet, right?

Not so much. Give it two more weeks.

It’s summer here in Florida already. I can tell you that. I’m doing my walks earlier.

My schedule is pretty brief, Monday through Friday, just here until five every day. However, we can help.

I’ll tell you, they’ve been one of the best sources. I’ve used them ever since I’ve been in this business as a constant source, knowing that there’s always money there. They’ve got the reputation and the longevity. They’re doing it right. No question about that. I think there’s some stuff to be learned there. Of course, you’ve got some other events that you’re going to be at, I’m sure, industry events. Make sure if you go to those industry events to look for Rachel, and they’ll have a little stand there and everything, a little table, and go by and say hello.

Cool. Thank you.

Rachel, thanks so much for being on. I really do appreciate it. Thank you, everybody, for reading. Again, if you like the show, please give us a nice rating, subscribe. If you want to see the video replay, check out my YouTube channel. Even if you don’t want to see the video replay, go to my YouTube channel anyway. I’ve got a lot of other videos that I do, tip of the day, all those sorts of things for you.Just crank it out some good content. If you want to get involved in the note industry or you’re already in the industry and you want to crank up where you’re going, I can help you with that. Reach out to me at Kevin@KevinShortle.com. Thanks again. Thank you again, Rachel.

Thank you. Have a good one.

 

Important Links

• Rachel Sims on LinkedIn
• Learn with Kevin Shortle
• Kevin Shortle on YouTube
• Kevin@KevinShortle.com
• Real Estate Without Renters
• First National Acceptance Company
• Rachel.Sims@FNBA.com

 

About Rachel Sims

Rachel Sims has been in the Note industry for about 10 years now. I have been able to close in 45 of the 50 states! Before I helped in the Note world I spent a few years on the origination side of traditional financing. That quickly led me to know I simply wanted to find solutions to help others.

The Note space has helped me find many workable solutions for sellers and borrowers. What doesn’t work for me might for friends I have in the industry, and I am always happy to help make those connections.

 

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