Building Cash Flow Without Cash - Formula #5 "Flipping Paper"

You’ve heard of flipping houses, haven’t you? This has become well known over the past years, mainly because of many Real Estate “Gurus” teaching seminars, writing books, selling tapes, etc. There’s even been some bad connotations from various forms of government; primarily because they don’t understand it, instead they believe & do whatever the Banking Industry tells them to do. I don’t mean to get off on a political soapbox; however, the kind of house flipping I know about and have written about is perfectly legal and if done right, benefits all parties.

So what about this “Flipping Paper” thing? Well, it’s a lot like flipping houses. It is also quite similar to being a Bird Dog for house-buyers, as I discussed with you in one of last week’s articles. What I’m going to discuss with you now is exactly what I did when I first got in the paper business. I took a seminar taught by Mike Meeker, a well known and excellent teacher, who I believe is now retired from teaching. I also believe he is living in Florida, or was when I last had contact with him.

Anyway, back to our story. This was back in the late 1980′s and I had no money available for investing. Here is the concept: You want to find Real Estate “paper” (Land Contracts, Trust Deeds, Mortgages, Notes) that is “For Sale” or will become for “For Sale”. To make it simple, let’s just call all these different types of paper, “Notes”. You are looking for Notes that were created in an Owner-Financed sale of Real Estate. Because of today’s market, these types of notes are plentiful; however, in any kind of market there will always be these “Private” Notes available because many buyers can’t qualify for Bank Financing and many properties won’t qualify for Bank Financing. To give you an idea of today’s market, just take a look at any major newspaper’s “Real Estate For Sale” section, and look for those ads that state “Owner Financing”, “No Bank Qualifying”, “Special Financing”, etc.

Trust me on this point; there will ALWAYS be Private Notes available and many of the owners of these notes would rather have a large chunk of cash NOW rather than monthly payments over X number of years. Also, there are and always will be Private Investors (and sometimes big company investors) who buy these notes. Why? Because almost ALL Private Notes can be bought at a substantial discount. Why? Because of the greater risk involved in these non-qualifying buyers and/or properties. In fact, I have never seen or heard of anyone who would pay 100% on the dollar for a note.

So let’s start putting this together. Remember, you are going to function as a “Middle Man”, not unlike the “Bird Dog” mentioned earlier. Here’s how we get started:
Find the Notes. There are numerous sources; such as Realtors, Title Companies, Real Estate Attorneys, etc. You can run a short ad in your local paper, such as – “I Buy Real Estate Notes” or “Top Dollar For Your Real Estate Note”. If you scan the ads you may see other people looking for notes. Don’t worry – There are enough to go around.

You could also look for ads offering “Owner Financing” in order to sell a property. Call the person, then ask them if they might want to sell their note after they close on the sale.
So let’s say you find a note for sale, what now? You need to have funds available to buy the note. Where do we get that? How do we know how much to pay for the note? In our next article we will get into answering these questions and how you can get that cash into your pocket.

To Be Continued -

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.