May 25, 2017

JF996: How to Buy, Hold, and Sell Seller Financed NOTES

Best Ever Tweet:

Dawn Rickabaugh Real Estate Background:
– Owner of Note Queen Capital and specializes in owner-carry portfolio and been an investor for 13 years
– Buys seller-financed notes across the country and helps others get started investing in notes
– Consults in real estate transactions that involve owner financing, and buys & sells real estate
– Based in Carson City, Nevada
– Say hi to her at
– Best Ever Book: A Course in Miracles

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Buy Seller-Financed Notes


Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.

With us today, Dawn Rickabaugh. How are you doing, Dawn?

Dawn Rickabaugh: I’m doing great, thanks for having me!

Joe Fairless: Well, it’s our pleasure. Nice to have you on the show. Dawn is the owner of Note Queen Capital, and specializes in owner carry notes, and she has also been an investor for 13 years. She buys seller-financed notes across the country and helps others get started in notes. She is based in Carson City, Nevada. With that being said, Dawn, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dawn Rickabaugh: I would love to, thanks Joe. Well, I graduated from college with a bachelor’s in nursing, and I worked in an ER, in an ICU and I raised for babies, and all during that time I would take these courses and think that I think I can be an entrepreneur some day. That day turned out to be 2004, when I put my nursing job on a dime; I still had four kids and two mortgages and three dogs, and I decided “Hey, I’m other gonna think or swim, but I’m gonna go for it.” I fell in love with the note business; I just love the financial calculator, I love being able to work that and figure out how to solve problems, and I just love how private money works; I stay away from bank financing.

Ever since I quit that job, I’ve been doing a variety of things, but what I do most is I buy owner carry paper. That means when somebody offers owner financing and they become the bank of their property, sometimes that want that payment stream, but then sometimes they need cash instead of the $800 or $1,500 that’s coming in per month; they need a lump sum of cash for something, and that’s where I come in with my investors, and we take down these investments.

Joe Fairless: How do you get a deal? Do you usually find it yourself and have the conversation with the owner?

Dawn Rickabaugh: That’s a great question. Everyone wants to know how do you find notes. A lot of people do direct mail, just like you do direct mail to find motivated real estate sellers – you can do that for paper. You can buy lists of people that have carried that paper and want to sell their property. For me, I’ve never done that; it doesn’t mean it’s a bad idea, but I end up attracting a lot of business to me because of my positioning in the marketplace. I’m talking directly with sellers, and I also have people that bring me deals, that are very good note brokers, note finders, and they find them in a variety of ways, whether it’s direct mail, Craigslist… Just other internet-based resources. So that’s the way I find them, and then investors – once you have a good deal, it’s not hard to find the money.

One person gets their friends and family involved, so the private money tends to grow organically, and so do the note leads. But the other thing that I really love is having this understanding the secondary market for private paper gives me a real advantage as a real estate investor, because I understand how to buy with owner financing and how to sell with owner financing, and how to get liquid either way, if I need to, to make the deal work. So to me, the best ever advice as a real estate investor, you need understand the secondary market for notes, because it will give you the edge that most investors just don’t even see.

Joe Fairless: I’d love for you to elaborate more on that in a second, but first, before you elaborate on that, I think what would be good is if you give us a specific example of a past deal, and tell us the story about the individual – how you came across them and why they ended up doing the deal with you in the way that you wanted it to be structured.

Dawn Rickabaugh: Okay, fantastic. I have several I can pull from this week. Here’s an example – it’s not my ordinary example, but it’s kind of fun to talk about… There’s a nice property in Laguna Niguel – a really [unintelligible [00:06:02].22]  of Orange County, California. They’ve been on the market, they need to sell, and they got an offer for their four million purchase price, but the buyer only wanted to put two million down, and he wanted another couple years to be able to pay off the balance. So that’s two million down owner carry, and that’s a very reasonable thing for the sellers to become the lenders and just say, “Hey, yeah, we’ll let him pay us monthly, $16,000/month and within two years he’ll pay us off”, except for they need to cash out because they’ve got an underlying bank loan that’s pretty sizeable that they just wanna get rid of.

So here’s the situation where the note sellers – they’ve got to sell the property for the price they wanted, in exchange for carrying terms; they could have made probably 250k-300k in interest just being willing to do that, but since they don’t wanna do that and they need to sell, they came to me and said “Can you structure this deal in a way that we can sell the note right after we create it?” So that’s what I’m doing in that situation, where they used owner carry to get sold, but they used the sale of the note to liquidate, to get a couple extra hundred grand in their pocket, plus get rid of that underlying bank loan that was making everybody nervous.

So what I get, besides a consulting fee to sort of puppeteer the whole thing, but I get to buy the note and add it to our portfolio, because I’m buying it at a discount. And because they brought me in ahead of time, we could minimize the discount that would be required, because notes can sell for 50 cents on the dollar, or 30 cents on the dollar, or 90 cents on the dollar, depending on how the whole deal is put together.

Joe Fairless: Okay, so you will have the note, and there is already two million paid down on it. It’s a four-million-dollar note, right?

Dawn Rickabaugh: Right. No, four million dollars sale price. Two million down, and a two-million-dollar owner carry note that I’m gonna be able to buy for 1.9. It was a very small discount because I was brought in in the beginning as a consultant to say “How do we cash out of this without being chopped off at the knees?”

Joe Fairless: So it’s a two-million-dollar note, and you bought it for 1.9, so there’s a $100,000 spread, and the best case scenario for you is that you get $100,000 over two years as a result of this person paying down the note.

Dawn Rickabaugh: Right, but you also have the face rate of the interest rate. So between the discount and the face rate that the borrower is paying, it works out about to 9%, and this is a very excellent collateral. The worst case scenario would be the best case scenario where you end up owning for two million dollars, plus legal fees – you end up owning this really killer property in Laguna Niguel. So that’s the best case scenario, if there’s a default. The worst case scenario is that me and my investors get to put almost two million dollars to work and make really a total of about 270k in interest over a two-year term.

Now, the thing that’s interesting about buying notes at a discount versus just I could have made a loan, but the borrower only wanted to pay 5,5%, no more. So most private lenders don’t lend at that. But they could get the owner to carry a 5,5%, but then the owner just has to discount on their side. It’s like the seller has sort of paid the points, in a way, to get liquid out of this, but what they were doing is finally being able to get out of a property that they needed to sell, and this is the best offer that’s come along so far, so it really worked for them on a multiplicity of levels… But here’s the deal – he gets two years to pay off the note, but if he pays it off early, technically on this there’s a $2,052,000, so basically there’s a $150,000 spread. So if he doesn’t ride it to maturity — let’s say he pays it off six months from now, in December, but I still get the whole balance.

So if the balance on the note from him – it still has a balance of let’s say $2,030,000 and I only paid 1,9, that honoring discount that you get when a note pays off earlier than expected, there’s a minimum yield of around 8,5%-9%, but if he pays off early, it will push us over 13% on this really excellent, safe investment. So that’s kind of the beauty of buying discounted paper, versus just making an origination, like a private money loan, or something.

Joe Fairless: That’s fascinating.

Dawn Rickabaugh: It’s about crunching the numbers to make it work. And then I can take it to a real small level too, because that’s out of the reach of most of us. I don’t buy four million dollar homes myself. [dog barking] Sorry about that… Someone let the dog in. [laughter] Okay, that was the best ever puppy in the world, so it actually works for your show. [laughter]

Joe Fairless: Beautiful, nice segue! Good save! [laughter] So on a smaller level…

Dawn Rickabaugh: Yeah, let’s just take it on a smaller level. Here in my hometown of Carson City, Nevada, somebody had a mobile home note. Let’s say they sold their mobile home for $22,000  and they took $10,000 from the buyer, so they ended up with a $12,000 note. Who’s gonna buy a note secured by a little mobile home in Carson City, where the space rent is like $425 and it’s first-lien position…? Well, this kid – he could receive those payments and it could be really well, but the problem was he needed to leave town; he needed to get liquid and just move and never look back. That was a Craigslist, actually. I had created a filter saying “anyone talking about promissory notes, drop it into my inbox.”

I got it while I was at the gym one morning, I called him, and I bought the $12,000 for like $6,000. He was thrilled. So it’s not a huge gain for me… Okay, I’ll double my money in the next four years, but little things like that stacked up really go a long way. So I solved the problem of the guy needing to cash out, and there’s not very much of a market for that. And also, I’m rehabbing and selling mobile homes on owner carry terms. So if someone doesn’t have all cash, I say “Hey, if you can put at least $5,000 down, I’ll carry for you”, so as a real estate investor I have the edge, because I know how owner financing works, and if I get tight, unliquid, I can sell off a piece of my note to get liquid again.

Joe Fairless: Was the actual Craigslist ad “anyone talking about promissory notes” – did you post that?

Dawn Rickabaugh: Yeah, I have this revolving “I buy property, I buy paper”, or anything promissory notes, owner carry – I’ve created filters, so that Craigslist dropped those in to me, and I also have an ad that just says I buy these things. But I keep revolving on Craigslist, and some of the guys that bring me deals, that hustle out there and are good at nailing things down, they find them on Craigslist or they’re just hustling out on the internet, and then others, they spend 5k a month on direct mail campaigns, and we’re able to convert those leads very effectively.

Joe Fairless: How did you get the lead in California, the Orange County one?

Dawn Rickabaugh: That’s all about positioning. I’ve spent my time building my business very slowly and organically, like the turtle approach versus the hare, where I’ve been blogging since 2008, I wrote a book back in 2009. I’m working on my second release this summer, which is gonna be a lot more fun to put out there, even than my first book, and then I did a lot of speaking. So I guess when you position yourself a certain way, then people care about you, they like you, they get to know you, and so they think of your when they have a situation. So a lot of times when a deal is falling apart… Even my neighbor, last year – she’s a realtor and she was double-ending this nice, sweet deal, $15,000 getting ready to drop in her pocket, except for the funding fell through. So she brought me in to save that deal from falling apart, and I know she bought a hot tub with that money and I haven’t been invited over yet to sit in it. [laughter]

Joe Fairless: How did you save that deal? What did you two?

Dawn Rickabaugh: We could have hit it two ways; the reason it fell apart is because the borrower — he had a big down payment, like 30%, but he couldn’t get the loan because he didn’t have the seasoning in the business, because they moved from a California business to a Nevada business, and they didn’t have two years in Nevada yet. So he couldn’t get a loan, which is absolutely ridiculous; he has a great credit risk. He could have gotten hard money, or I could have set him up with 9% or 10% money and 2-4 points [unintelligible [00:14:49].08] expenses. Then I looked at the seller and I was like “They’ve got great existing financing in place. The only problem is they’re 30k behind [unintelligible [00:14:57].08]” so that’s 5% financing. So I said, “Here’s the deal. Buyer has the money to get them all their equity and take over – not subject to, but we did a wrap, so that the people that are on the loan can’t get cut out of the deal by accident; they always have a play. Do you understand what I mean by “a wrap” versus “subject to”?

Joe Fairless: Elaborate, will you?

Dawn Rickabaugh: The borrower actually owes the seller and the seller owes the bank. So we need to make sure that the seller, if they don’t get their money from the borrower, that they have the right to foreclose and get the property back. If you take it subject to, if there’s a default and they start — well, in this case, the credit was crap anyway, because they hadn’t paid for two years, but they had equity still… But anyway, so they couldn’t step back in if they wanted to, because you need to have a way for the sellers to have a play to get back in the deal, so that’s why I use it as a wrap. Borrower owes seller, seller owes bank, and then we have a note servicing company to keep score for everybody. So when the borrower pays the seller, they know that the seller is paying the bank loan because he doesn’t wanna be paying, and then find out that it’s going into default. And the sellers actually want their credit to be rebuilt. So this was beautiful.

The buyer – he brought in a big amount of cash to give them all their equity and to bring the loan current, so then instead of paying 3 points and 10% for a private loan, he’s not leveraging the 5% bank loan that’s still on the seller’s name, and the sellers are gonna win because now somebody is rebuilding their credit. By the time that this is done, they’re gonna have 2, 3, 4 years of perfect payment history and it will rebuild their credit so that when they’re ready, they can go get another loan and start their lives over, and then by that time the guy can get a loan in his own name, because they will have sufficient seasoning of the business here in Nevada. So that’s where it was just like an epic win/win for everybody.

Joe Fairless: Yeah, what a deal… Thank you for this example. These are three examples that are just phenomenal case studies, for different reasons. I wanna ask one last follow-up question about the Orange County deal… You mentioned you put yourself out there, but specifically how did you get in contact with them? You talked about the things that you do, but did they reach out to you via a website, or what?

Dawn Rickabaugh: Yeah, they sent me an e-mail… I guess they’d heard me speak and we must have met years ago. The funny thing is this guy is actually an attorney, but when it comes to this stuff he calls me, because attorneys — it’s really great when they know that they don’t know everything… [laughs] So usually I’m educating attorneys about the secondary note thing. But he’s also a real estate investor, so he knew about this deal and he wanted me involved to help these people that he knew. This is actually the second referral that he’s brought to me, to help create a win/win solution for all the parties. And it doesn’t always involve a note to get sold, sometimes it’s a lease option, or we put a trust together… There’s not one hammer fits all, but when you understand the secondary market for notes and you can do that dance between property and paper, you just become a killer problem solver. And it’s not only fun, but it’s lucrative.

Joe Fairless: Feel free to repeat the secondary note thing, but… I have to mention it, because I’ve got this whole lead-up music too when I ask you, and it would just kill the whole show if I don’t ask you specifically… But you can repeat your answer, that’s fine. So what is your best real estate investing advice ever?

Dawn Rickabaugh: Learn the dance between property and paper. Learn how the secondary market for private paper works and you will have the edge over every other real estate investor that you perceive as competing with you and your market.

Joe Fairless: That is true. Just hearing you talk through these case studies… It’s 3.0 real estate investing, and it’s something that a lot of people don’t know about, and I’m grateful that you’re on the show talking about it, and I’m grateful that you spiced it up that go around… Instead of “understand the secondary markets”, you gave us a little “learn the dance between…”, so thanks for that too.

Dawn Rickabaugh: You’re welcome. I think people need to dance. Dance, and sing, and laugh, and have fun.

Joe Fairless: There we go. Well, are you ready for the Best Ever Lightning Round?

Dawn Rickabaugh: Oh, I have my little paper here.

Joe Fairless: Oh, okay… Well, I might have to ask you some questions that aren’t on it, just to keep you on your toes.

Dawn Rickabaugh: [laughs] Okay.

Joe Fairless: First though, a quick word from our Best Ever partners.

Break: [00:19:43].20] to [00:20:30].21]

Joe Fairless: Best ever music you like to dance to?

Dawn Rickabaugh: [laughs] Well, lately it’s country… Since I moved to Carson City, Nevada, I bought a truck, I bought a Harley, and I can do country dancing now. But don’t tell anyone.

Joe Fairless: [laughs] Well, I think we told a lot of people just now. Best ever book you’ve read?

Dawn Rickabaugh: Course In Miracles.

Joe Fairless: Best ever deal you’ve done?

Dawn Rickabaugh: Buying a non-performing diverse note that was in second position for $10,000 and nine months later getting $80,000 when it paid off.

Joe Fairless: Best ever way you like to give back?

Dawn Rickabaugh: Creating homes for families who are shut out of the system. They don’t have all cash, they can’t get a bank loan, but they still need stability for our communities and they need a home for the family. So that owner carry thing that I help make happen in my own backyard – that makes me feel good. And also sharing information, so people get inspired to do this in their own communities and create those financial solutions just one moment pop to another.

Joe Fairless: What’s a mistake you made on a deal?

Dawn Rickabaugh: Trusting a title company to do the right paperwork, to do it right, and then finding out they didn’t, and then I just wanna hit myself.

Joe Fairless: [laughs] What do you do now to mitigate that risk?

Dawn Rickabaugh: I read things. I take responsibility for all the documentation and paperwork, the due diligence. I kind of read stuff; just sort of reading things.

Joe Fairless: And where can the Best Ever listeners get in touch with you?

Dawn Rickabaugh: And I also have a podcast – Owner Financing & Note Investing Podcast.

Joe Fairless: Alright. Well, we’ve got two ways then – the podcast, go check it out, as well as Dawn, I loved the case studies; that’s one of the best ways to learn. You gave us the case study in California, the case study with the mobile home note, and the case study with your neighbor, and three solutions, all having a central theme of, as you said earlier, knowing the secondary market for notes and being able to structure it accordingly. I learned a lot on this subject in particular.

Thanks so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Dawn Rickabaugh: Thank you so much, Joe. It’s been a privilege. Take care.

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