Building Cash Flow Without Cash - Formula 5.5 Flipping Paper Continued

When we ended Part One of this formula, we had figured out how to find paper to buy so that we can “Flip” it and get some of that Cash Flow. Just as we discovered how to find and buy Real Estate paper, which we will refer to as “Notes”, we will more or less use the same tactics to find someone that we can flip these notes to, for a profit. Good sources are Realtors, Real Estate Attorneys, CPAs, Financial Planners, Stock Brokers, Loan Officers, etc. However, the best probable way is the old “Ad in the Newspaper” formula. You could advertise with words like “Real Estate Note For Sale” or “Investor Needed To Purchase Real Estate Notes”. Check the newspapers and Yellow Pages for ads like “We Buy Notes” and/or “Top Dollar For Your Notes”. In other words, look for the same ads we saw and used to find Notes to buy & flip.

When you find an Investor or Note Buyer, you need to determine the requirements and perimeters of the Note Buyer, such as:

What kinds of properties will they accept as security for the note? For example, Single Family houses, Land or Lots, Apartments, Commercial Property, or Mobile Homes with or without Land.

What kinds of minimum yields do they want from the notes they buy? This will vary based on many factors, such as security for the note.

Investors will want greater yields on higher risk notes. For example, a note secured by a Single Family, Owner-Occupied (with excellent pay history) would probably require the lowest yield, let’s say 12% return on the investment. On the other end of the scale might be Raw Land, wherein an investor may require 18% or 20%. In this article I’m not going to get into how to calculate yield. I will, however, recommend that anyone interested in these types of deals purchase a good financial calculator or software.

Examples of other things an investor may require are Title Insurance, Appraisals, Credit Reports, Casualty Insurance, etc. These things discussed above need to fit the investor which you may be dealing with.

OK, so now we have found a note to buy on a Single Family house. The face amount of the note is $80,000 with 10% interest payable monthly over 20 years. You know that the “Going” investor yield requirement for this type of note is 12%, which you could sell this note for $70,115. So for you to make a profit of , say $4,000, you offer and get accepted a bid of $66,115. You should actually get a written contract to buy the note from the owner, preferably an “Option To Purchase”. You have to keep in mind who is going to pay things like Title Insurance, Closing Costs, etc. If you are going to pay for these costs, you better subtract the amount of these costs from your offer to the owner of the note. Investors do not normally pay these costs.

What you are going to do is have a “Double” or almost simultaneous closing wherein you will close with the owner of the note first. Then a few minutes later you close with your investor who is buying the note. The closer(s) will then disburse the funds; $4,000 to you, and $66,115 (less Title Insurance fees & Closing costs) to the note seller. Actually, I found it works better if I paid these costs and bought the note at a lesser price, say $64,500. Sometimes when people go to a closing they become unhappy when they realize they’re receiving less money that they thought they were going to.

I know I’ve covered a lot here that seems complicated, and it is – a little; however, once you’ve done a few deals it becomes routine. I remember when I first started trying this. I became discouraged and it took me a few months to close my first deal; however, since that time I would estimate that I’ve bought and sold over 6,000 notes – And most of those, one at a time. Of course once my volume increased I hired people to help me.

The note business is a great and very interesting career; Something new or different all the time. One thing I want to stress is that it is very important to have that double closing so that you actually own the note, even if only for a few minutes, before you sell it to your investor.

I will be publishing a book in the future, showing in detail how to thrive in this great business. I will be selling the book for a nominal price, which at this time I haven’t determined. It will depend on how much time I put into it; however, I want it to be as complete as I can make it. I’ll tell you this, if a person enthusiastically gets into this business, the business will always be there with excellent financial returns.

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.

How To Find Good Mortgages To Invest In

No Question, buying and holding (reselling) private Real Estate Mortgages can be a very lucrative investment or business. By “private” we mean mortgages, (Trust Deeds, Land Contracts, Contracts For Deed, etc.) that wherein one party, the Seller (not a Bank or other Institutional Lender) has sold a Real Estate property to another party and has taken back a mortgage from the second party or the buyer.

Now there are other types of “Paper” or Notes that fit the above description that may be secured by collateral other than Real Estate. Mobile homes, business fixtures & equipment, inventory, cars, boats, phone, etc. We are not going to discuss these here, however, we may do so at a later time because investing in these types of notes can also be very profitable, sometimes more so than Real Estate Notes because of the greater risk. When the risk is greater, the possible profits are also greater as are the possible losses.

So, back to the question; How do we find “Good” Mortgages to invest in? There are a number of ways to do this. If you get active in buying private Mortgages or lending direct, the word will quickly get around and you will have more deals to look at than you can probably handle. Let’s discuss some of the ways to start finding those Mortgages.

* Check ads in the classified section of the newspaper – Look in “Money Wanted”, “Mortgages
For Sale”, or “Investor Needed”.
* Run your own ad: “Mortgage Buyer”, or “Money To Lend On Real Estate”.
* Develop a relationship with a Real Estate Broker that has access to Multiple Listing Service
“MLS”. The Broker can access MLS and find out sales that were made wherein a seller
financed the property. Contact the seller to see if he wants to sell the Mortgage.

The best bet, in my opinion, is to contact a “Note Broker”. This is a person who specializes in finding Mortgages for sale. The Note Broker finds a buyer for the Mortgages and charges the mortgage owner a commission. Or, the Broker may buy the Mortgage himself to resell it to an Investor. You can find these Brokers in several ways, such as:

a. Check the Yellow Pages for Mortgages, or Note Buyers.
b. Check ads in the newspaper which may read: “We Buy Mortgages”, “Mortgages For Sale”,
“Top Dollar For Your Note”, etc.
c. Ask among Real Estate Brokers if they know of any other Brokers who buy Notes.

If you can’t locate a good source, check with the following reference:
Bill Mencarow
The Paper Source
317 S. Sidney Baker, PMB 304
Kerrville, TX 78028
www.PaperSourceOnline.com
email – info@papersourceonline.com
Phone: 830-895-5025

Bill publishes a monthly Newsletter called “The Paper Source”, which is a Newsletter about the Note Business. Bill has a registry of Brokers all over the country. He could probably refer you to someone. You might even want to subscribe to the Newsletter to learn more about the business. If you contact Bill (or Allison, his wife & partner) tell him I referred you!
We have just scratched the surface here. We will continue next time on “How To Find Good Mortgages To Invest In - Part II”. I would appreciate your comments.


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.

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.