Best Cashflow Rentals or Notes/Paper??? - Posted by Mark H

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Re: Notes and Real Estate a perfect marriage - Posted by MATT BADGER

Posted by MATT BADGER on October 20, 2007 at 12:50:30:

I’ve been doing investments in realestate for about 3 years, but I need some help grasping the buying notes process. I know there’s a lot I’m missing out on by not knowing about notes. I would appreciate any help I can get to understand how they work. As far as buying and selling notes. Thank You!

MH deals? - Posted by Mark H

Posted by Mark H on September 19, 2007 at 16:52:12:

Very interesting- so you had rentals first and later got interested in Lonnie deals?

I got the book when I was first starting out- I had no means (that I could see anyway) to buy rentals but I figured I could get a few MHs. I remember driving around parks looking for for sale signs… Never did anything beyond that…

So you are truelly happy with the MH deals? Maybe I need to re-read that book…

Re: Let Genie Out of Bottle w/Liquid Paper! - Posted by David Butler

Posted by David Butler on September 18, 2007 at 09:01:43:

Hello Jimmy,

Great post! Really enjoyed reading it. Wanted to offer one quick suggestion to your very last sentence regarding your desire to avoid having your cash “bottled up in notes”. Two things come to mind - the first being related to leverage rather than just notes. One of the strengths of your investing history here is the apparent balance in what you do with regard to avoiding “overleveraging” - which is the backbone of the “pyramiding assets” technique of real estate investing and a valuable lesson for budding investors to learn from.

On a more note-specific application, many of us use credit lines to purchase notes, and profit from the spread, thus leveraging the notes we purchase, by way of hypothecation.

However, while notes themselves aren’t liquid cash, in the hands of a skilled real estate investor - they can be, and often are, better… to the point that much like you are handling your rehab refinancing, you have many ways to turn notes into cash, and often at huge yields that make whatever time your cash is “bottled up” more than worth the effort.

This is especially so when already successful at operating in the manner you are presently following - and even more so still, in a market experiencing a liquidity crunch such as the mortgage meltdown we are facing now. In fact, investors having this knowledge and skill set will play a big role in helping to solve the liquidity crisis swallowing up the market now - by understanding how to inject “liquidity” into a marketplace whether using cash… OR NOT!!!:wink:

Some of the best real estate deals I have seen - and a favorite technique of Terry Vaughan, John Behle, Mike Morrongiello, Tom & Roberta Standen, Phil Camenisch, Bruce Pollock, myself, and many others - is trading paper purchased at discount, for full value on the purchase of still more real estate.

Other times, a note(s) can be used simply as “additional collateral”, functioning as a deal sweetener when pledged to support an otherwise cash “thin” offer to a property owner, where you are asking him to carry back a very HLTV mortgage. Judicious use of installment sale on one property, and installment purchase on another, can on occasion provide better results than a 1031 exchange, and enjoy similar tax-deferred benefits as well.

Another scenario is where you are attempting to get a seller to “walk the mortgage” (the new seller carry back mortgage note to be created) over to another property you presently own - and the Seller wants more security to do so! This can often be the case if you are holding on to vacant land, or lower rent property that the seller is not enamored with - or where the seller is hung-up about “wanting to be completely free of the property”.

The reason you are doing this of course is to grab the new property free and clear, so you can then refinance it when you desire - and pull cash out of it.

It can get even better when used in conjunction with using Land Trusts to “sell” your properties, and taking advantage of IRS Rev. Rul. 92-105 which classifies the “paper” of a beneficial interest in a land trust as “like kind”, rather than as taxable “boot” (one problem with notes is that when given to “balance equities” in a 1031 exchange, the value given/received is often-times taxable to both parties.

The strategic use of land trust “paper” as opposed to “mortgage paper” is an additional tool that is extremely effective when part of your strategy “before-the-fact”, such as when you know that you will occasionally “harvest” some of your rental home portfolio to generate more paper. The nonrecognition of gain or loss from exchange of a beneficial interest in Illinois land trust offers some powerful advantages for pyramiding assets through exchanging up, when you already know as part of your objectives, that you will be continuing to

My apologies if you are already aware of this - but I felt it was a valuable addition for other visitors who are already benefiting from your own experience here. Best wishes for your continued success, and Keep…

Having Fun For A Living!

David P. Butler
www.hotspurinvestmentgroup.com

Re: Best Cashflow Rentals or Notes/Paper??? - Posted by Mark H

Posted by Mark H on September 17, 2007 at 15:33:05:

Wow- thank you for the response and the information!

You have my attention- I follow the theory- as long as it is leveraged. I cannot see spending my own cash on them unless I would expect a very fast payoff (“flip that note”?)

How/where are notes found/sold?

How are they financed? I assume I can’t just go to my bank and say I want a loan to buy a note- or can I?

Re: MH deals? - Posted by Anne_ND

Posted by Anne_ND on September 21, 2007 at 09:38:46:

MHs have a substantial “yuck” factor that keeps lots of people from getting into that market.

But with a little knowledge you can make great, I mean GREAT, cashflow. My highest yield on a Lonnie note was 990%. Typical Lonnie deals garner 50-75%, and the ones I do (because I like to write checks, I do not do any fixup work myself) are usually 20-35%.

There are a number of things that can increase one’s income, and reduce the headaches- such as how to find a good handyman, what repairs are cheap and easy versus ones to stay away from when buying a fixer-upper, and how to find good deals. All of these are discussed on the MH newsgroup here at CRE.

MHs are definitely worth a second look if cashflow is your interest.

Anne

Re: Best Cashflow Rentals or Notes/Paper??? - Posted by John Behle

Posted by John Behle on September 17, 2007 at 19:47:01:

I should have mentioned, that there are many discussions about how to find and fund notes in the archives here that you will find. Also, there are many articles on both subjects at www.papergame.com

Re: Best Cashflow Rentals or Notes/Paper??? - Posted by John Behle

Posted by John Behle on September 17, 2007 at 19:45:47:

My best sources of notes have always been real estate agents and referrals from others like CPA’s, Attorneys, Financial Planners, etc. I also do well with classified ads, but it has to be a well worded ad in the right place.

There are about a hundred sources of notes. I have posted them here several times, so they are in the archives. Other people find notes in a variety of ways like direct mail, etc. I’ve just learned over the years how to work really well with agents and to be a resource to them.

Funding for notes is primarily through private investors, but there are some small institutions that will loan against notes like credit unions, etc. The challenge though it that you have to train and teach them and that can be a real challenge with institutions. I do best with those that already buy or have bought notes in the past. But, I far prefer working with private investors. I found most of them through REI groups and through my real estate activities. Most bankers would have no clue what you are talking about, but when you develop a personal relationship, it can make a giant difference.

Realtors & other referrals - Posted by Dario

Posted by Dario on September 17, 2007 at 20:31:52:

John,

The ad that you recommended in your course was “Fast Cash, Top Price; we buy Contracts, mortgages and deeds of trust. Any size, any state, any condition.” Is this still the ad you use or do use a different ad nowadays? What other details about classifieds should I look for in today’s market vs when you wrote about it in '91?

As far as working with agents, my friend is an agent and I have been talking to him about creating notes to sell more homes for almost a year and although he likes the idea and says it makes sense, he just never follows through with doing a seller carry back deal. He said he would introduce me to his broker to speak to him about what I do with notes.

Would you recommend giving a talk to a sales staff meeting on how if they talk their clients into carrying a mortgage they could subsequently sell the loan at closing and in turn sell their property faster? Does this techinique work for you in this way even today or do you work differently with agents altogether and offer the agents different benefits on how you could help their business? Other than this, I just can’t see an agent digging into their files for past clients that took back a note and mortgage for a referral fee from me especially since for the last few years, thanks to to the subprime fiasco, at least in my market, there hasn’t been much of a need for seller financing.

Any advice from you John, on a more efficient way to find notes would be greatly appreciated.