Paper Magic

Next To Cash (and sometimes BETTER than cash), paper (Mortgages, Notes, Deeds of Trust, Land Contracts, etc.) is the most flexible negotiation instrument in the buying and selling of Real Estate. In our last discussion I stated that the creation of paper (wherein a seller finances the property purchase for the buyer by taking back a mortgage) seemed to benefit the buyer more than the seller, but this type of transaction can greatly benefit the seller also.

Example: Seller owns a property that just can’t seem to get sold. Maybe just because of the slow market or because it’s unfinanceable by an institutional lender because it’s land, mobile home & land, and any number of other reasons.

There is a very viable market for Seller-Finance paper. There are many investors, to include banks and other entities (pension funds, private investors, etc.) who buy paper on a regular basis. There are a multitude of brokers who are eager to help an owner sell this paper. In addition there are many buyers & brokers who advertise on the Internet.

In order to have “Salable” paper, the seller of the property shouldn’t accept just any buyer. I would suggest requiring an application outlining employment, etc. Also, I recommend a fair amount down payment – 5% to 10% (the more, the better) – Then, I would require a credit report on the potential buyer. Things I look for is their past pay history on home loan payments or rent and car loan payments. I have found that people who have a good history of paying their housing cost & car payments will probably make the payments on a mortgage secured by their new purchase.

Paper also makes a good investment to put in ones 401K or other Retirement Program. In fact, you can have your 401K purchase paper. We will discuss this more of this later.
The seller can also use the paper to purchase other Real Estate with. I have purchased a lot of Real Estate with paper; buying the real estate at face value of the paper, which I purchased at substantial discount. This builds an immediate profit in the property being acquired.
More on Paper Magic to come - We haven’t even scratched the surface yet!

These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.