Be The Bank
Be The Bank
005 - Own Nothing and Control Everything
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
Be The Bank S5 Ep5 - Own Nothing and Control Everything
On episode 5 of season 5, Justin Bogard and Richard Thornton discuss funds and origination vs seasoned loans!
Key Takeaways:
- Himalaya's are getting taller?
- The Great Re-Set
- Newly Originated vs Seasoned Loans
Resources and links discussed
- Videocast on our YouTube Channel
- ANB Funds Website - https://anbfunds.com
About the Host
Justin Bogard – Note Investor specializing in performing Residential Real Estate Debt. He finds deals and acquires them for his own portfolio as well as educates investors while walking them through the process of owning a Real Estate Note!
Connect with the Host:
- Facebook - bethebank
- Twitter - bethebank1
- Instagram - bethebankpodcast
- Constant CashFlow - https://brightpathnotes.com/constant-cash-flow/
- American Note Buyers - https://anbfunds.com/
- Monthly Broadcast - https://youtube.com/playlist?list=PLzc944w1xydt5aLDrrEPHJhdJeDkBjjD4
Interested in real estate. How about wealth? Well, they go hand in hand . And here you'll learn all about it. About it . Welcome to Be the Bank, a podcast where we discuss and debate the topics centered around real estate investing. Your host, Justin Bogart , share's insights into investing in real estate to create real wealth and passive income for you and your family. He'll share stories of real estate investments done right, walk you through the process of owning a real estate note, and most importantly, educate you so you can be the bank . The bank. This is be the bank brought to you by American Note buyers. Now here's your host, Justin Bogard .
Justin BogardHello, it is episode number five of Season five today on the American Note Buyers sponsored Be The Bank Podcast. Today we're gonna be discussing kind of some news and events that are going, going on in the country today as it relates to , uh, mortgages and the business. Uh , we're gonna touch on origination loans, newly originated loans versus seasoned loans as well. So stay tuned. Hey Richard, how are you my man ?
Richard ThorntonPretty good, sir. And you ?
Justin BogardGreat. Yesterday at Peg 70 Degrees here in Indiana. Can you believe that?
Richard ThorntonThat is amazing. The north , north of San Francisco was 45, so I , you know, 30 degrees difference between here and there. And it's , uh, you know what, what is is , uh, what we're thankful for out here, but um, is amazing is that by , uh, this weekend mm-hmm. <affirmative> , the skis will have gotten over 10 feet of snow.
Justin Bogard10 feet. Wow.
Richard Thornton10 feet of snow. That's a lot. A lot of , a lot of skiers out there are having a good time.
Justin BogardSo is it safe to say it's 10 feet taller now?
Richard ThorntonYes, it is . <laugh> , it's, you know , to that effect , the Himalayas are getting taller every year .
Justin BogardIs that because the , the earth underneath it is pushing it upward?
Richard ThorntonVery good. Very good. Yes. My ,
Justin BogardShe has been teaching me on the side.
Richard ThorntonI know my geologist other half would , you know, would , would be, would be proud of you. It's cuz it's subducting and getting moved up and I can't remember, I think it's , uh, four or five centimeters a year that , uh, Himalayas moved up.
Justin BogardYeah. This is to , this is totally true. This is all fact. This is not, this
Richard ThorntonIs big stuff.
Justin Bogard<laugh>. Well, it is , uh, we're recording this here in March. So in about a month we're gonna be going on spring break. So the girls have their spring break, the first week of April, and we are going to be going to, well I decided, and they're cool with it to go to a baseball game up in Detroit. And so the Red Sox will be playing up there and that's kind of , uh, my favorite team. So when they are local, why not?
Richard ThorntonI know I, you know, I'm looking all over here. I don't remember seeing a request for that across my desk.
Justin BogardOh, <laugh> put it in a time off sheet. Yeah.
Richard ThorntonWhere is this? Where is this? Huh?
Justin BogardWell, I guess you just found out <laugh> that thing better be approved.
Richard ThorntonYou , you have two choices. You can either do that or you can invite me, which was better. You better get the handwriting out very quickly. No ,
Justin BogardWell that's gonna be an expensive flight out there for you . From good old Petaluma.
Richard ThorntonYeah . Especially since I don't follow baseballs.
Justin BogardRight. <laugh>
Richard Thornton<laugh> . So what's going on in the conventional market these days?
Justin BogardWell, I saw a newsfeed that came across Pro . I don't know if I was looking on Facebook or just , um, on Google or Firefox, whatever I was on. But , uh, you know, the owner of the Cleveland Cavaliers is Dan Gilbert. Mm-hmm. <affirmative> and Dan also is the , uh, owner of Rocket Mortgage since I think 2020.
Richard ThorntonOkay.
Justin BogardAnd so, you know how Rocket Mortgage did really well during that super low interest rate timeframe, which was, you know, the 20, the 2020 timeframe.
Richard ThorntonMost mortgage companies worth their salt did
Justin BogardYeah. <laugh> . And they made, they made a crap ton of profit. Yeah. Well the opposite happened in the fourth quarter of 2022 . Oh ,
Richard ThorntonCan you imagine?
Justin BogardYeah. So they reported a loss for the first time since Dan's owned the company. I , I believe, I'm just , I'm trying to remember what I read. So if I'm wrong, I , I apologize. I'm not, not trying to give, give a quote here, but I believe they had 481 million in revenue, total revenue for that quarter. Mm-hmm . <affirmative> mm-hmm . <affirmative> . And they lost 493 million.
Richard ThorntonHmm . Last time I looked it up. That
Justin BogardDoesn't work. No, it doesn't work. Hmm . So I am making assumptions here, Richard. And my thought is that the most glaring thing to me is we are not having nearly as many refi as we did during the super low interest rate , uh, timeframe that that happened a few years ago. Right. So the one thing I can imagine is that refis are down just so significantly that it finally showed up on the balance sheet , uh, for these mortgage companies, specifically rock and
Richard ThorntonMortgage. So if you wanted to go out and get a new home mortgage today , um, you know , uh, less than a jumbo , uh, what do you think it would cost you? 20% with 20% down in your area?
Justin BogardLike the interest rate? Is that what you're asking?
Richard ThorntonThat would be Not the apr . Nothing fancy. Just the flat out rate.
Justin BogardI , we've been hovering around six and a half for a while . Oh , it's got up seven, been over seven for a little bit. It jumped down closer to sub six and a half . Okay . So I haven't looked in the last week or so, but I, I would venture to say it's probably between the six and a half to seven range. I did see a little blurb today too when I was doing some research that said the Fed is probably gonna start hiking the rates back up. They, I've heard rumors that they feel like they've controlled inflation enough to where they mm-hmm . Feel more comfortable to jump rates back up. So we may see a , um, a dance from six to 7%. Yeah . Maybe for a while, Richard. I don't know. Yeah .
Richard ThorntonI mean , uh, uh, you know, this is a technical term I'm gonna use, but the , uh, I think the economy is playing , uh, ne na na with the , uh, like you can't , you raised the rents or not the rents you raised , raised the rates and you want me to go down, well, guess what? I'm gonna tighten back up. And unemployment is now at 6.36%, which is as low as it's been in the last 20 years. So na na nannie . Yeah . That's kind of amazing. I don't , uh, it'll be interesting. Obviously they can't , uh, publish these stats on a realtime basis cuz they can't collect quickly. But , um, in the next three or four months, we should know why and what part of the sector , um, this is coming from. Uh , I have been reading of late and I think some of us have read some of this and suspected this, but weren't necessarily knowing about it. But rather than calling it , uh, the rate , the great resignation, they're , um, calling it the , the Great Reset. Uh, case in point, my neighbor , uh, has a very nice , um, upper end restaurant here in the petal area. And during the, during the , um, pandemic, his executive chef quit.
Justin BogardOkay .
Richard ThorntonAnd he had a whole bunch of time in his hands and he went back and taught himself coding. And he's now making 120, $150,000 a year, which is just as much as he was making before. And, you know , uh, he's not , uh, working until midnight every night. Not, not only his feet. Now I think a lot of people have quoted the, you know, the coding thing, but from what I've read, there's just a lot of resetting going on that a lot of people are just taking jobs that they still liked or they liked. Maybe they weren't making quite as much money, but they haven't gone away. They're just reset.
Justin BogardSo are you, are you saying that you're seeing , uh, people resigned from businesses and starting their own kind of 10 99 or contracting work?
Richard ThorntonUm, that, or they're just taking , uh, like one guy was reading about , uh, took a job for a nonprofit , you know, he's not making quite as much as he would mm-hmm . <affirmative> , it's always interested him and, and , uh, so how does that, how does that affect the economy? Well, a , he's still employed, but b that shows up as a stat, as a new job generated. Okay . So that affects that 6.36% unemployment.
Justin BogardI, I've seen since, since Covid, there's been a lot of people that went into the self-employment part of this , well , I'll call it the sector mm-hmm.
Richard Thornton<affirmative>
Justin BogardAnd which, which is great for them. But I can imagine, like anything else in life, there's gonna be a balance of it. There's gonna be a flow towards a bunch of people wanting to be self-employed and wanting to be 10 99 and trying to, and do things on their own. And then there's gonna be another reset within that, that they're gonna go back to an employer because things may not have worked out the way that they thought they would. Or maybe it's just a lot easier if they don't do it on their own and they ha and , and they're with the company that can provide all the resources they need. So I can, I can see that thing ebb and flow for a little bit. Um, I did notice a bigger surge obviously in 2020 cuz everyone was at home. Right. They couldn't, they couldn't do anything. Right . They couldn't go to an office. So it , it made sense. Right. But , um, time will tell. Yeah.
Richard ThorntonThe only time I'm, I'm, I'm , uh, not happy that I went into a business for myself is tax time. Cuz when I was a W2 employee , uh, my employer handed me my w2, of course it was my company, but still it was, they gave me a w2. I filled that out and filled out the form and said, thank you very much. And even though I'm giving an accountant all my stuff now I know I'm getting , uh, 10 99, 10 99 INTS from Alli and FCI and BFI and collecting this and that. And you got , I got socked last year because I I missed just one. Yeah. And the service came back to me and said, you didn't report this. They're right. We goofed
Justin BogardIt seems every year I tried to get taxes filed for the business and for myself by, you know, the march or the April 15th and for the businesses March 15th deadline. And it, it seems like there's always something that I can't get done because I'm waiting on something else from somebody else. Yeah . And so it seems like thank God they allow for extensions because I , I don't know if I can ever file my taxes on time when they're, they're supposed to be filed instead of , instead of filing extension <laugh> . Right .
Richard ThorntonWhat else is going on?
Justin BogardWell, I wanted to bring up a subject today about , uh, kind of , um, you know, the, the positives about a fund . So we, we hear about funds all the time, different types of funds, mutual funds, real estate funds, equity funds. Ours is a debt fund and it may not fit everybody. And especially, it shouldn't be all of your eggs in one basket type of thing. Right . You definitely should spread out your retirement and your wealth through other vehicles of investment, whether they're passive or not. Whether it's some passive or slightly passive or slightly active, however you wanna describe it. But, you know, pretty much any investor that has , that starts to get a sizable amount of money, they, they really do diversify that type of passive income in , in different, in different verticals. Right . And the fund is really a great way to do that. But I see a lot of hesitancy in people wanting to do that because I think they have that fear of like, the money is locked up really long term . Mm-hmm. <affirmative>. And one of the pushbacks that I would get about a fund , uh, in the past, in , in recently is just they , they would just feel like they just, they don't have control of something or they don't, they don't own something. So I wanted to hear kind of your feedback, feedback on reasons why that that really shouldn't be a big concern for someone.
Richard ThorntonWell, we, we could start a fund that has a two, a minimum two year investment period. How would that be?
Justin BogardThat'd be great. Yeah. Yeah .
Richard ThorntonOh , why don't we do that? Okay . We've Oh, we've done that. That's right. That's right. Um, go ahead . I
Justin BogardMean , it's funny that you say that, but what are CDs, right? CDs are, you know, six month , one year , 18 month, you know, two year whatever. If you do a CD with a bank, you're locked in that period anyways and you're making a significantly lower amount. So what, what would be the disadvantage there with a fund? Well, really there is no disadvantage. It , it would be even better because you know that you're making more return and you're in the same lockout period. Right.
Richard ThorntonRight. And so, I mean, for us, obviously we wouldn't want all of our investors to get in and get out in two years and have that be their strategy. But where else are you making six and a half to 8% on a , you know, our two year investment And hopefully you'd like us well enough so that you stay in a lot longer than that. But, but that's a strategy .
Justin BogardIt seems like most people that I've done one-to-one deals with, and we talked about this in the past, is that a , after they get that payment stream coming in for a while , they get a couple of payments coming into them that, that are their profit payments or maybe their , their principle and interest payment that they're owed. They like that and they realize I didn't have to do any work. I don't have to make any phone calls. I don't have to drive to a property. I don't have to swing a hammer. I don't have to call a realtor. I don't have to do , you know, and they think about it like, oh my God, I made this money very passively and I have security with it, high security and a lot of passivity. And it just makes more sense to keep the ball rolling or add, add more to it. Or they just keep that money over there working the way they want and the rest of their money, they kind of work more actively. So I I I see it's like , um, it's like a trial trial by basis type of thing. You know, where they Yeah . You have to get involved in and get some of these payments coming in and you're just like, oh, okay. I see it.
Richard ThorntonRight. And I , I don't, you know, I mean, I don't need to belabor to the point here, but , um, so gida , my significant other , uh, gets about $2,000 a month from the various notes that she's invested in. And every once in a while she comes back in and she's a professor. She works hard, she's always worked hard for her life, doesn't make a ton of money or anything like that as a professor. And she goes, wow, I did absolutely nothing and I made $1,950 or what , you know, whatever it was, you know , this year. And she's just tickle pink, you know, and it's kind of funny. She , she knows the reality. I know the reality, but it's kind of a nice feeling sometimes. I think
Justin BogardI always tell everybody that the first time that they invest in a note, I was like, you, you'll be hooked. You won't be hooked because you, you know what's gonna happen, you'll be hooked when that first payment comes into your bank account and it's, and you , and you realize, okay , I know what I've had to earn in the past to get money to come, come into my account now I'm not doing anything and that money's coming into my account. It , it feels really good.
Richard ThorntonYeah. Yeah. I like it. So I think there just the instability of the market right now is causing people to, to um, just pause a little bit and say, where are they gonna put their money? And nice thing about, you know , mortgage notes , uh, whether you're buying individuals or, or not, is that they're stable. You know , so are you really gonna go wrong if you buy something and you make 8%? Well, yeah, you may have missed the , the very top of the market at some point if you get eight and a half or nine or even 10, but it's gonna be a higher riskier, much riskier product.
Justin BogardYeah. It's like when do you fill up your gas tank, Richard? Yeah. At at what price point do you wait as long as you possibly can for it to get to B In California, I'm probably sure it's like four or $5 per gallon, but Right. If you're like, okay, if when it hits 4 25, I'm gonna go fill up my tank, geez . Tank the two 10 gallon gas cans that I have. Like, is that what people do ? Like some people may think they should do that, but they, they don't, they maybe they don't understand <laugh> the amount of time and the energy that it takes to, to wait for that or you know, when you can just be like, just fill it up when you need to. Yeah . It's the same thing with real estate investments. Like, people will sit on the sidelines for years those two or three years and they'll hold onto significant amounts of money. And there's nothing wrong with it. It's just, you know, there's a huge cost that that money costs you by waiting for something that the , the perfect deal, right. There is no perfect deal. It's just what fits your parameter that day. That's what you go after and you repeat and rinse. The more that money is working for you, the more it's just making for you making for it . It's sitting idle for a long time. It's really, it's really diminishing your return cuz you're making nothing and you're losing because of inflation as well.
Richard ThorntonRight. I'd have to check this just to make sure, but I think that the interest group, which is who I use for my IRA custodian. Yeah. I think they said that , uh, 30% of their total assets now that's assets that their clients like me are controlling, is sitting idle. People are doing nothing like that . And if you think of the cost of that, that's amazing.
Justin BogardSo they take the money out of the traditional stock markets and other senior investments like that and they realize I don't want to be in that environment. Okay, that's great. You made one decision, your second decision. Okay, where can I put it to where I can choose to where I can make the investment , uh, decisions myself. Okay, you put it with a specialized custodian. Okay great and now it's there. And then what do you have to do? You have, you still have to go out and find the investment. Right. So I think there's um , there's some timidness about they're not sure what's best to do. Right. And everybody wants the lowest risk with the highest return deal. That makes total logical sense. We all wish we could find that deal all day long and fund it with everybody else's money, including your own Right. <laugh> . Right. It just doesn't, it doesn't happen that way. You have to, you have to have to understand what investment makes sense for you. Do you want to be active with it? Do you wanna have a rental, do you wanna sell horses? Do you wanna invest passively with another professional that does do this for a living? Like there's just Right . A multitude of things and you have to figure out what you wanna do. But the worst thing you can do is have that money sitting in the account not doing anything.
Richard ThorntonYeah. Which, which a lot of people do just that. Yeah . Armand , I'm probably guilty of , of keeping more in my checking account just as rainy day money in case all the banks stop or you know, we get hit by the hurricane or, or whatever. But beyond that, I'm fully invested as much as I possibly can be. Cause uh ,
Justin BogardBut you have a plan. You have x amount of dollars that you put in this account, you have for sure y amount of dollars that you have in this account and you have z amount of money over in this account and they're all working in a different bucket and a different vertical how you want to, so the entire portfolio is strong cuz you're diversifying , you have a plan. I think most people just, they can't figure out the plan that they're not, it's not like they're not intelligent enough to figure out a plan. They just, they're really unsure as to what the next step is. They know they didn't want to go to the standard world. I wanna be in this real estate world, but I just don't know what the best vehicle is. So they just need to have better education , uh, out there on, on what to do.
Richard ThorntonYeah . The , the downside of , uh, of uh , a self-directed ra cuz a lot of people say, oh, it's wonderful, you know, vanguard's charging you a point and a half or two points or whatever it is. Yeah . Self-directed iris charging you maybe all in eighth of a point and this is wonderful, but it's self-directed. You've gotta tell them where to put it. Yeah . You have to make those decisions. And I think even though people hear that, it doesn't quite sink in until they realize that their money's been sitting there for a while .
Justin BogardThey love the idea of it's control. I control the investment, that's awesome. That's what I want to do. But when it comes time to put, you know, ink to paper, the , it's , uh, you freeze. It's like getting , uh, what they call it on your wedding day cold feet.
Richard ThorntonRight, right, right.
Justin BogardYou're getting cold feet with the investment and it, and it's perfectly natural to think that way because this is the first time you've had a chance to have a say so with your retirement money.
Richard ThorntonRight. So, you know, to that degree we didn't talk about , uh, discussing this too much, and I won't go down this rabbit hole too far, but exactly what you just said is an advantage of doing , um, an installment sale trust mm-hmm . <affirmative> setting up one because you can sell off your real estate or whatever, you can put it in a trust and you can direct that trust to buy notes. How about that? Um, and especially if you're sort of helping a a person do that , um, it works just like a 10 31. Uh, you're not your , your tax deferred just like a 10 31 . But yeah , it's something for people to think about.
Justin BogardSo Richard, the , the types of investments that we purchase are performing loans or traditionally first lien , right? It's all secured by real property, whether it's land, whether it's , uh, you know, a home on, on real property as well. So they're typically owner occupied. We do do some known non-owner occupied stuff, but the main caveats we have is two sections. We have newly originated loans mm-hmm. <affirmative> and then we have seasoned loans. Right. And so the definition of a newly originated loan is a , is exactly how it sounds. It's a brand new loan that was just created, just went to the title company and was just closed on, ready to sell to another note buyer, like American note buyers .
Richard ThorntonBut they've had to have made , uh, at least one payment on that. Right. Or, or else we're considered the originator.
Justin BogardSo there are ways around that, and that would be, you can buy it at the funding table, but you don't have to collect the first payment. You can make part of the purchase agreement that the person that sold it to you person we bought it from just collects the next payment or the next two payments that come in. And those payments are deducted from the sales price . So they are actually collecting the payments. It's just we say, Hey look, in the future we're gonna start on month X. Mm-hmm.
Richard Thornton<affirmative>. Okay . So what do you see as the offsets in terms of , uh, buying a season note ? Let's say a note that's got two years of seasoning on it. It's, it's a nice enough house, probably a , you know , whatever degree asset , um, versus something like that you just mentioned that is , uh, maybe got one payment and, and answer it in the context of what , uh, different underwriters are bringing to us.
Justin BogardSo let's, let's back up a second and talk about seasoned loan. So , uh, the definition of a seasoned loan, just so that we don't get off track too far, is just a loan that has several payments already made. And so we look at it as something that has a proof of concept. So Richard and I look at a loan, we say, okay, seasoning is basically more than one payment, but we really say a seasoned loan is really somebody that's paid at least about seven to eight payments and beyond. And then we say, okay , that loan has really been seasoned. They've, they've gone through a stretch of payments in a row they've made before the next due date. And that that's a , that's a seasoned loan that we, that we can look at. A newly originated loan obviously is a brand new one. So your , your question was around the newly originated loans, like what's, what's the glitz and the glam about it?
Richard ThorntonHey , what's the offset? In other words, so you've got one, you have nice seasoning , you've got a payment history, you've got somebody who probably has emotional , um, history, I'm sorry, emotional , uh, ties to that versus something where somebody's just basically walking in the door. Why, why would you do
Justin BogardThat? Yeah. A lot of it has to do with control. Mm-hmm . <affirmative> . So in one aspect, I have a note that's seasoned, a seasoned loan that shows a good amount of pay history and it shows the propensity for the borrower to repay. Okay . That's a great attribute that we hold very high and high regard when we're valuing a note. The newly originated loan , what's attractive about it, Richard is control. Mm-hmm. <affirmative>, what do I mean by that? So we help set up that deal that we are going to purchase. And what we do is we know that it's gonna be written on the paper that we want it written on mean meaning , you know, a a professionally , uh, written promissory note and mortgage or deed a trust, depending on what state you're in, there's gonna be title insurance and a full title underwriting from a , from a title underwriting company. Mm-hmm. <affirmative> , it's gonna be a loan, a lender title policy as well to ensure it's a first lien and they're , you're gonna see a settlement statement that shows, you know, taxes are this, they're being paid out of , you know, down payment, here is all the costs associated with it. And then boom, everything's clean and done. The borrower is also being underwritten by a third party underwriter. That's just a guy that says, Hey, they got the ability to repay. Yes, they do. They, they're not gonna be in any sort of trouble in the future cuz this is a affordable payment based on their current income.
Richard ThorntonSo, so we're meeting the CFPB guidelines there .
Justin BogardRight, exactly. Dot Frank and CFPB guidelines. So in one hand, a newly originated is control is is the sexy appeal to it . Mm-hmm. <affirmative> and the seasoned loan. It's, it's the , uh, propensity to repay. So they both have very strong attributes to them and we weigh them differently based on different things. But that's, that's the new sexy Richard is the newly originated loan and as long as they're compliant and done with our requirement specs, it's a, it's a really nice , uh, deal for us.
Richard ThorntonSo is there any difference in asset quality?
Justin BogardThere can be. Typically the newly originated loan is gonna be probably a rehabbed home, which means they've got, you know, updated mechanicals. They usually got, you know, pretty a newer roof. They usually got the inside elements of the house, you know, cleaned up of whether it's new drywall or new kitchen or stuff like that. It's , it's typ it's typically like that. So the home is more sound a mm-hmm . <affirmative> more seasoned loan. It , it may have been a while since the house have had had some T L C in it.
Richard ThorntonRight. So is it fair to say also that for someone to sell an unseasoned loan, that they're not going to get quite the pricing that they would on a seasoning seasoned alone and therefore our spread's gonna be a little bit, bit different too, right. A little bit better.
Justin BogardYeah. The pr , the pricing does weigh into that. And there are numerous factors as you know, Richard, about valuing a note and what it's worth and what we're willing to pay for it. So by definition, a newly originated loan will have a larger , um, uh, discount as we call it when we pay for it, meaning you used it , here are the terms like cents on the dollar. They'll usually be a range of like, let's say a grade, a paper that we would find, which is a really well-written paper with high quality attributes to it. You know, it could be, you know, in between the 85 to 95 cents on the dollar to pay for it. Meaning, we'll, we'll pay that much of the unpaid balance and perhaps a newly originated loan, it, we see a little bit more risk to it and maybe it's just gonna be less, less than that. So by definition, a newly originated loan will, we will get a better deal on it, but we're also assuming a little bit more risk because we haven't seen the propensity to repay even though we have everything else laid out.
Richard ThorntonAll right . So we're, we're making money by just letting it , uh, season
Justin BogardYes.
Richard ThorntonBy just letting time pass and , uh, see as the flowers grow, right?
Justin BogardYeah. So the , the most interest per payment the borrower will ever pay is obviously the first payment that they make. Right . The least amount of interest a borrower will ever pay on a payment is the last payment that they will make.
Richard ThorntonThat's true.
Justin BogardRight . So owning the note in the beginning of its life is very advantageous for a lender because there's a ton of interest, which is why banks will sometimes either sell a loan quickly or they may hold it for the first year or two and then sell a loan to someone else because they're basically, they're , they're, they're capturing all the interest they can from the loan and the unpaid balance. Moose very, very, very slowly in the first, you know, few months, few years of the life of the loan.
Richard ThorntonSo you think the banks thought about that when they created amortization test schedules
Justin BogardEighth Wonder of the World, right? They
Richard ThorntonDid . I think so.
Justin BogardCompounding interest.
Richard ThorntonI think so. That's
Justin BogardRight. And amateurization. That's right. That's , that's what they do.
Richard ThorntonWell, that is always all very interesting. I I, I , uh, like it every time I hear it in terms of explaining that , um, I mean there's a lot of different ways for people to make money and, and certainly to make it legally, but also to make it smartly. And I tend to think that a lot of people who are investing in notes with correct underwriting and things like that are investing smartly by diversifying their portfolio. And I'm just, I always wanna emphasize that I'm just talking about diversifying. Nobody should put a hundred percent of the notes or, or portfolio into notes or mortgage or, you know, real estate or anything else.
Justin BogardRight. Exactly. All right . That is all the time that we have for today, Richard, thanks for being on the podcast again today and , uh, sh shepherding me through this , uh, this fun little topic with season notes and originating new so
Richard ThorntonThat by the next time we open it up, you're gonna be able to gimme the outcome and a blow by blow or the , the , uh, red Sox game.
Justin BogardWell, the game isn't until April. So depending on when this episode's recorded and the next one's recorded, it may be another episode until you find out the answer. But yes, you'll know.
Richard ThorntonOkay. Alright . All
Justin BogardRight . All right everybody, we'll see you in the next episode. This is brought to you by American No Buyers .
Speaker 4Okay, bye-bye.
NarratorThanks for listening to Be the Bank. We hope you learned something from today's show. If you enjoyed this episode, please rate and review us. Plus check out our channel on YouTube and follow us on Facebook and Twitter at Be The Bank and on Instagram at Be the Bank Podcast, be The Bank is sponsored by American Note Buyers. Thanks again for listening.
