What Is Note Hypothecation And How It Can Work For You | Part 1 - YouTube

I am so excited to get into this topic. What is  note hypothecation? And how it can work for you?  

Now, this is part one because this is a large  topic. It's a very exciting topic. It's near  

and dear to my heart. And I've broken this into 4  episodes. So, if you'll stay with me through these  

4 episodes right in a row, you're going to see  how life-altering hypothecation can be because  

it has changed my life without a doubt. And in  this episode number 1, you're going to learn a  

word that can make you a lot of money and that  word is hypothecation. My name is Mitch Stephen  

and I bought a house about every 4 to 5 days in or  about my hometown of San Antonio, Texas for over  

2 decades. Now, I sell my properties about 70%  of the time with seller financing. So, I finance  

my buyers for 30 years at 10% fixed no balloons.  So, I know a little bit about the seller finance  

strategy and I've done a lot of hypothecating  in my time. Once you understand hypothecation,  

it's going to open up a whole new dimension in  your investing career. So, in this series, you're  

going to learn the definition of hypothecation.  And we're also going to walk over to the white  

board and show a case study using real numbers and  a real hypothecation scenario. Now, before I move  

over to the whiteboard, make sure you subscribe  to this channel so you can get the whole series.  

A lot of times the topic is so big that I'll break  it into part on 1, 2, 3, 4, whatever I need to do.  

But I have to take this in small pieces  and go slow so that everybody understands.  

By definition, the word hypothecate means:  To pledge by law to a specific purpose.  

So, when I hypothecate my note a note that my  buyer owes me, I will pledge it for a loan from  

a borrower who wants to lend me money and that's  called hypothecating my note. I am going to pledge  

my note that's owed to me as collateral for a  loan from a private lender. If you are seller  

financing to your buyers then this is a must use  strategy. And if you are not seller financing  

maybe you should think about it. I'm going to  show you why right here over at the white board.  

Okay. So, here's a real typical basic fundamental  case where you might want to hypothecate and get  

some of your money out of a deal. Here we  go. Let's say you buy a house for $100,000  

and you use your own cash. Then you sell  the house with seller financing for 185,000  

and you take 10% down which was 18,500 for the  down payment. Now, that'll leave you a balance  

of 166,500. And I typically like to sell  or finance my notes at 10 percent for 20,  

25, 30 thirty years. So, in this example, you're  financing your buyer. $166,500. 10% for 20 years,  

okay? Now, this is all fine and dandy. Over here,  you have $1,607 coming in per month. That's what  

your buyer owes you every month. But  the problem is you're out of money now.  

That was your only $100,000. If we only have  $100,000, how many houses can we buy with  

$100,000? Uh, one maybe? You know, maybe 2  if you're in certain parts of the country.  

But let's say in this case, it's your only  100,000. You're done. You're dead in the water  

now. So, let's hypothecate your note and let's get  that 100,000 back. Let's pledge this $166,500 for 

100,000 loan so that we can live to invest  again. What happens if we do that? Well,  

let's say we borrow this 100,000 at 10 years,  8 percent then you're still going to profit  

$394 per month. But you'll have 100% of your  100,000 back. Let's say you talk to a private  

lender and this is why private lending is so  important why you must master the art of finding  

private lenders. Because this is what keeps you  in the game forever. Put out your money, go to a  

private lender, get it back. How many houses can  you buy with other people's money? It's infinite.  

There is no answer to that. As many as you can. As  long as you don't run out of private lenders. So,  

let's say you borrow for 15 years, okay? 15 years  at 10. If you do that, you're still going to be  

making $532 per month, okay? You have all your  money back and you're making $532 per month. Let's  

say you do... And I do this a lot. I do 5 years  interest only at 8%. 5-year interest only, 8%.  

And that's I/O. Interest-only. This is  killer, guys. I got all my money back  

and I'm making $940 a month. The difference  between what I owe and what I'm collecting. The  

difference between what I owe over here and what  I'm collecting the difference between what I owe  

and what I'm collecting. So, here you only  owe (667) and what I'm collecting. So,  

this is why private lending and  note hypothecation is so important.  

Here's the problem where most people get messed  up. They think, "I'm just going to go refinance  

my house." Well, you can't refinance your house.  You sold it to this man on payments. He gave you  

18,500 down and that goes in this pocket, right?  Because when you go get your 100,000 back,  

not only are you making this monthly cash  flow right here, one of these, would you know  

depending on how what you borrow and the term  you borrow. But you've already made 18,500 here  

because you can fix it to go borrow all your  money back that you bought the house with. So,  

you're making 18,500 and then it depends on what  kind of deal you can strike up with your private  

lender. You want 10 years and 8%, you get to make  $394 a month. You know, I like to do one of these  

2 times a month. Make 18,500 times 2 and then  every time I do it, my cash flow goes up by about  

4 bucks, okay? It's private lending. But here's  where people get messed up. They think they're  

going to go refinance this house. You can't.  When you sell this house with seller financing,  

you've made a note to your buyer who gave you  the 18.5(thousand) down. You don't own this house  

anymore. What you own is a note. And hypothecation  means you are going to pledge this note for a loan  

because that's the only thing you own at this  point in the game. You bought a house you sold  

on a seller financing, you can't refinance the  house. You've got to hypothecate your note. You've  

got to pledge your note. It's collateral for loan.  And that's how it works. To watch my free webinar  

The Art Of Creative Real Estate Investing,  just go to 1000thouses.com/free-stuff. And  

just scroll up and down there. Actually, there's  a lot of free stuff. Find the Art Of Creative  

Real Estate Investing webinar and click on it  or click on anything you want. And if you like  

what we've been doing today, please click that  like button for me. Share it with your friends  

that are interested and subscribe so that  we can keep up and keep on the same page.