Free source of capital coming soon - Posted by Dan Smith

Posted by Potash on November 27, 2007 at 18:19:23:

It makes perfect sense if you use Hyperdimensional physics.

Free source of capital coming soon - Posted by Dan Smith

Posted by Dan Smith on November 24, 2007 at 10:22:05:

In another long night of pouring over the info here at CREOnline my tired brain took bits of info from many postings and articles and put it all together in a synergistic system no one has ever mentioned. Target market: real estate investors over $10mm in debt regardless of equity position. How they benefit: 2-4% savings in monthly debt service outlay at no cost and instant equity creation(read: higher net worth AND lower debt-to-income ratio). How I benefit: Target market, once educated, begs for my free service and while they are enjoying their much improved balance sheet I have created for myself over $500,000 investable cash flow per client. Easily a $50,000 payday for me per year per client for about ten hours of work. I have run all of this through some custom written Excell software and would love to bounce it off some of the “gurus” from the site, particulaly those well versed in discount notes. Email me at and I will explain further to work out any bugs before I post it here at the risk of propagating bad advice.
If you want me to run a specific case study just fill in the blanks and I’ll show you what I come up with. The info below is all I need and it is all I will need from prospective clients to show them how I can help them.
Feel free to make up an imaginary portfolio of multiple properties and I will return an analysis on each property as well as the whole portfolio.
Loan balance:
Term:(whole years)
Yes sir, that’s it. Three basic peices of info are all I need. The rest is all what appears to be magic, but in reality is a complex combination of discounting mortgages, time value of money, float, velocity of capital, and what I like to call synergystic rate of compound. In my original post I figured my cost of capital at 15%,very conservative (it can work even at a 25% cost of funds or more in nearly any case). At that rate I could expect to see an investible cash flow of 5% of client’s debt, and again conservatively a 10% yield on those funds. As for your imaginary portfolio give me a few scenarios to run as far as what you would consider pessimistic, realistic, and optimistic percentages for cash flow and yield rates and I’ll show you what I come up with as far as required cost of funds etc. Long story short: I found a way to get all the free investment capital anyone could ever want and be rightfully thanked by the people giving it to you. And it is fully scalable, $1000 in debt-$100billion in debt, its all the same.

I just did it, heres EXACTLY how!!! - Posted by dan

Posted by dan on November 28, 2007 at 22:42:11:

I was trying to get someone to review my process and spreadsheets and tell me what I missed. Obviously the answer was “nothing” because in the last few days I went out did it, and it worked!! Here’s EXACTLY what I did.
My mother owns her home, or to say it in more truthful terms she has a mortgage on it as most do when they say they own it. The original amount financed was $863,500. This is owner financed for 20yrs at 7.25% with 13 yrs remaining. This means that her monthly payments are $6824.90, or a total of $81,898.80 per year. I talked to the people holding her note, and due to life in general they could indeed use some cash right now, (who couldn’t?). After some discussion they agreed to accept my offer to pay a full year ahead on her note, at a 12% discount, which came to $72,070.94. (Don’t confuse this with pre-paying principal, I am pre-paying the next 12 regular MORTGAGE payments so Mom won’t owe them anything for a full year) I borrowed the money to pay them from an uncle who had it in a bank CD earning 4.3% and agreed to pay him 9% for 5 years (now I’m his favorite nephew) which made my payments $1496.07 month, $17,952.84 per year for 5 years, a total of $89,764.20. (It doesn’t matter for the point I am trying to make but for those who are curious I make my payments directly into his CD account so he keeps earning even more on them, to see how much look at the future value of 60 monthly payments of 1496.07 @ 4.3% and add that number to the $89,764.20 he is getting from me over the same term. Whats his total yield I wonder? See why I’m his favorite?) Next I passed some of the savings off to my Mom. Instead of paying $6824.90 a month like she has been doing, she now gives me a check for $6302.71, for a monthly discount of $522.19 which is 8.285% off. All that will save her $6266.28 this year. Ok, so now I have a happy Mom and a happy uncle, but what about me you ask? Well,
If you followed the figures I now have $6302.71 per month coming in for the next year for a total of $75,632.52. And I have $1496.07 going out each of the next 60 months for $17,952.84 annually and $89,764.20 in total. Now I know what you are thinking; I just screwed myself to the tune of $14,131.67 over the next five years to help Mom and uncle Cliff, right? Yes, I will let you be right for a minute. Good job, the skeptics win, I’m out over FOURTEEN GRAND!!! As a few people chose to post I will just sit in my mental hospital and study my alternate dimension finances. Well, now that I’ve done that,
Yup, I was right after all. And heres why; who noticed it? Good job, you are already ahead of the pack because you took the time to think and comprehend before you spoke. I applaud you. And for those who missed it:
Look at my first year cash flow: 75,632.52 coming in and $17,952.84 going out leaving me with 57,679.68, or $4806.64 per month. Now, while thats not my money to spend (I owe it to my uncle), it is mine to invest for the next five years!! And how do I do that you ask? Well,
Did I mention I have a brother? I do, and he does construction like I do. My brother needed a new excavator but has crappy credit (Divorce happens). He runs his company very well and is quickly growing, but is needing things faster than he can buy them, simply paying cash as he goes. Some one helping him get that excavator loan would help him triple his profit per job. A few questions though: #1 Can he pay and #2 will he pay? #1 ABSOLUTELY!! he is already paying higher rental rates. #2 I “believe” he will with both my business brain and my “brothers” heart (my fiance does his books). So here’s what I did: I bought him the excavator! What he was after usually runs about $90K-$110K, we know someone that had one with BIG mechanical problems and I convinced him to sell it to me for $42,000 payable at $3500 a month for a year. And I talked the mechanic into taking 24 payments of $577.58 for a total of $13,862. Now for a total of $55,862 I own a $100,000 excavator. I am selling to my brother for $85,000 on a 3 year note, 16%, $2988.35 month, $35,860.20 per year, $107,580.60 total. If he worked on cleaning up his credit rating for the next year he might stand a chance of someone loaning him the money, at 18%-25%, maybe. And he would have lost a years worth of higher profits due to rental expenses.
Now to recap:
$75,632.52 from Mom
$35,860.20 from Dustin (brother)
$72,070.94 loan From uncle Cliff
$183,563.66 total
$72,070.94 paid to Mom’s note holders
$17,952.84 to Uncle Cliff
$42,000.00 excavator note
$6,930.96 to mechanic
$138,954.74 total

$35,860.20 from Dustin
$35,860.20 total
$17,952.84 to Uncle Cliff
$6,930.96 to mechanic
$24883.80 total
$35,860.20 from Dustin
$35,860.20 total
$17,952.84 to Uncle Cliff
$17,952.84 total

years 4+5
$17,952.84 to Uncle Cliff
$17,952.84 total

Grand totals
Year 1—$183,563.66-----$138,954.74
Year 2----$35,860.20------$24,883.80
Year 3----$35,860.20------$17,952.84
Year 4------------$0------$17,952.84
Year 5------------$0------$17,952.84-----I made

All I have into this deal is a few days of thought, a few hours of negotiations, and I suppose you could say my internet bill which is about $30 because I came up with this whole program based loosly on alot of things I read here on CREOnline. (hint: look at the excavator deal, It’s a “Lonnie Deal” in disguise)So, I didn’t get the “guru” feedback I had asked for, but I can tell you, and I think I just showed you, IT WORKS!!! I created free capital by pre-paying Mom’s mortgage (my client) with funds borrowed at a fair rate from my Uncle Cliff (my investor) and went out and invested those funds in my brothers business (a very high yield no-low risk venture). Everybody wins. And next year I’ll bet mom calls me to do it again. $37,587 isn’t too shabby for a weeks work if you ask me, as for the overall yield if you consider I’ve only got my internet bill as an actual outlay, well, it’s ummm, sorry, I ran out of toes. But I’m sure it’s “good enough”

Got my curiosity! - Posted by Terry Vaughan

Posted by Terry Vaughan on November 26, 2007 at 09:46:32:

Send me a spread-sheet. I’ll be happy to give you my opinion.

Terry Vaughan

Re: Free source of capital coming soon - Posted by James - Michigan Investor

Posted by James - Michigan Investor on November 24, 2007 at 11:14:11:

Ok, I’ll bite.

I don’t know exactly how you plan on making more money for each investor. I’m interested in what you have
here…I’ll reserve more comment until later. :stuck_out_tongue:
And I prefer a call - no offence, but I don’t like spam. :frowning:


KISS - Posted by Wayne-NC

Posted by Wayne-NC on December 01, 2007 at 04:56:15:

You know what that means. So, with that said, you have too many variables or probablities for problems for my comfort zone. We plan for perfection but always come out average. Anyway, I have thought of this a long time ago in a simplier fashion. It all includes and ultimately benefits only me, myself, and I. My cost of funds through my HELOC’s was 6% at the time (now 8% and most likely going down again). So, I thought to write a check for a year to obtain the discount as you suggest and you can do the math for the difference as a savings. I am only subject to interest rate risk. Going up cuts savings/profits etc. The reason I did not follow up on this is that there were better opportunities elsewhere at the time. I never did analyze the income tax implications. You may want to address that issue before you finalize your numbers. I really like your “out of the box” thinking though. Good Luck on this venture. Its’ always the naa sayers that are proven wrong. I read your “I did it” post. Now, go for it anyway and post again after your reliable and proven success.

Wow, you just created a monster! - Posted by DaveD (WI)

Posted by DaveD (WI) on November 30, 2007 at 10:31:40:

You said “well, it’s ummm, sorry, I ran out of toes.” No kidding. The good Dr. couldn’t have said it better himself.

While I appreciate your creativity, it looks really Frankenstein-ish… complete with about eight arms grabbing in all directions. “It’s ALIVE!” but at what cost?

You can only have so many uncles. Are the rest of your investors gonna give you 72 grand unsecured loans? “Promise to pay, really” ain’t gonna cut it.

You are correct about the Lonnie part in disguise. Nice job. But you should re-read his book. He believes in keeping things simple. So should you.

You have already arranged payments to the mechanic and excavator owner. Cool. Just get your good uncle to advance you the 13K you will need to cover your first year negative, with no payments to your uncle for the first year. It might just be chump-change enough to him that he will let you skate unsecured. Start your payments to your uncle the 2nd year. I’m too lazy to do the math, but it looks like you will make twice as much for a fraction of the exposure to either you or your uncle. Or having to worry about this star-and-moon alignment thingy. Stuff getting out of phase is a bad thing, BTW. Guaranteed to happen under your scenero. Whew!

Re: I just did it, heres EXACTLY how!!! - Posted by LJ

Posted by LJ on November 29, 2007 at 19:10:57:

The numbers in this deal are quite different than the numbers you stated originally. You originally stated a 6% discount on the mortgage, this deal involves a 12% discount. You originally stated a 15% cost of capital, this deal involves a 9% cost of capital. Using the original numbers of 6% and 15% you make almost nothing, even on this highly unlikely jumbo sized perfect storm of nepotism.

And really, any deal involving either your mother, your Uncle, or your brother does not count as a deal. Let alone a deal that involves all three.

Re: am I missing something here? - Posted by G.O.

Posted by G.O. on November 29, 2007 at 08:42:58:


Your creativity here is to be commanded, but I see things slightly differently.

Look: you have your grand scheme, no pun intended, going on the first year, but then… Then your mortgage discounting part of the deal is over, unless you have another uncle with 72k in CD account. So the years two and three are between you, your brother and your uncle. Stripping it down to the bone, this deal is essentially YOU borrowing from your UNCLE at 9% and lendning to your BROTHER at 16%. Great job! Of course, your brother could’ve borrowed from your uncle himself and then he would be his favorite nephew :slight_smile: But let’s say he weren’t your brother, then yes indeed, great job!

However, what does mortgage discounting has to do with it? Certainly, you make another 3.5K on a spread, but it is not essential to your grand total profit of over 37K in five years. (Besides helping your monther, you could’ve totally omitted this part. Moreover, read pt. 2) For the lack of another word, mortgage discounting part here is just… money laundering. Just that. It is what Ralph pointed out earlier: if you have an X amount of money and you say you can get a 6% discount on mortage (minus a small discount you give back to the payor, so it’s a little under 6%) and then re-invest this money at 20%, then WHY NOT just invest this X amount to begin with? Not mentioning that you have an entire X amount to start, but dilute it by getting it back as installments.

Part 2: you were looking for someone to shoot holes in your theory. I hardly qualify as a guru, but here’s my take:

Your one-year payment to the note holder is your greatest cash payment here. If you didn’t get involved with it, you wouldn’t have to borrow as much money from your uncle (you could’ve foregone using his money altogether) and thus eliminated your payments to him, especially 36K in years four and five.

Your main profit here comes from the excavator deal, which you created on paper, literally. I didn’t play with the numbers, so correct me if I’m wrong, but all you needed to do is cover a negative cash flow the very first year. Then, it’s pure profit for you. Almost 52K in three years!

Again, correct me if I’m wrong, your 37.5K profit in five years is… just accounting profit. Your economic profit is actually a loss…

Am I missing something here?

Re: I just did it, heres EXACTLY how!!! - Posted by Matt

Posted by Matt on November 28, 2007 at 23:33:50:

Nice job Dan! Way to think creatively. Do you think it will be as easy to convince a typical lender to take a similar discount?

Re: Free source of capital coming soon - Posted by Dan Smith

Posted by Dan Smith on November 24, 2007 at 11:26:10:

just post a simple theoretical portfolio of 2 or 3 properties and I’ll run them through and show you how it works. All I need is balance,remaining term, and rate.

And about the trust factor… - Posted by LJ

Posted by LJ on November 29, 2007 at 19:26:38:

You stated previously: “I am not asking anyone to trust me with anything. In fact, I will be trusting them with my cash. My plan involves ME using MY money to prepay a full year of thier mortgage.”

But you are asking your Uncle to make esentially an unsecured loan to you for $72,000(?). Yea, he is paying it directly to the mortgage holder on your mother’s loan. But that is a really awkward form of security. Your Uncle is willing to do that because he trusts you, and he knows your mother (and he probably knows the mortage holder too right?). But real world investors don’t make goof ball loans like this without gurantees and disclosures from all the parties involved, only the most sophisticated of investors would do this loan, and then they would want a lot more than 9%, and you would have to pay for title insurance.

Re: am I missing something here? - Posted by dan

Posted by dan on November 29, 2007 at 18:03:59:

It all hinges on all of the component coming together. I made something from nothing. Without the mortgage discount I wouldn’t have the monthly income, without which I wouldn’t have and couldn’t get the loan, and if I didn’t have the loan I wouldn’t have had the ability to create investable cash flow by playing around with the repayment schedule, and without investable cashflow I wouldn’t have made any money. Also if you look at my example you will see that I didn’t invest all of the cashflow that I created, and I also didn’t reinvest my earnings as I received them. I will bee fully paid back including all of my profit by the end of year three but don’t have to pay it back for another two years. So if I were to re-invest my $37,500 as I received it, and kept all of the cash flow earning on a compound basis until the moment I had to pay it back out I am sure that I could pull over $150,000 profit out of this deal, and I probably will. Plug all of the numbers into a monthly schedule and look at what my balance is each month. Now think what I could truly earn over the five years if I kept those funds working at a 30-50% yield every minute that I controlled them. FYI, I have a deal in the works on a $14,000,000 apartment complex owned by a friend of the family. Just at a glance I will easily make over $2,000,000 in 5 years on this deal. Accounting or Economic doesn’t concern me, I will be able to spend it once it comes out the other end of the machine, and I’m “quite alright” with that.

Re: I just did it, heres EXACTLY how!!! - Posted by dan

Posted by dan on November 29, 2007 at 24:08:29:

Read my reply to Kristine-ca, I was speaking about entire payoffs in it, but it should be scalable. Just know your figures and project confidence with honesty. There is a big difference between being right, thinking you are right, and knowing that you are right. Each of them will get someones attention for rewarding, productive, or disasterous results.

Re: Free source of capital coming soon - Posted by James

Posted by James on November 24, 2007 at 11:42:08:

Deal. These are real numbers too.

Property 1:
Mortgage Payment - 410.00/month
Balance $38,000
Rate - 6.25%
Time - 22 years left (30 fixed)
Ins - $65/mo
Rented for $625/mo

Property 2:
Mortgage Payment - 550/month PTI
Balance - $55,000
Rate - 9.25%
Time - 29 years left (30 fixed)
Ins - 0.00
Rented for $750/mo

Property 3:
Mortgage Payment - 325.00/month
Balance - $22,500
Rate - 11%
Time - 5 years ballon payment
Ins - $65/mo
Rented for $595

These are by far not the greatest deals, but there’s an unlimed supply of them that will cash-flow 100-150/month IF there’s a hefty mortgage/note on them.

Anyway, thanks for the suggestions/examples to follow.


Re: Free source of capital coming soon - Posted by Dan Smith

Posted by Dan Smith on November 24, 2007 at 14:25:24:

Sorry for the delay, I ran for lunch. First I should have been more clear, I am not looking for clients or investors at this time, I am sure I will have all of both as soon as I get up and running just with my local contacs here in WA. My goal in starting this thread is to see what people can find wrong with my thought process and hopefully get some knowledgeable people to shoot some holes in my theory so that I can patch them up. Someone I respect greatly said that the best sign of intelligence is seeking the counsel of those more knowledgeable than yourself.
Now for your portfolio. Bear in mind that what I am talking about is geared for existing debt and decreasing the required monthly outlay required to service that debt. All other factors are merely fluff and have no bearing for what I am talking about (I’ll explain exactly why they don’t concern me in a later follow-up).

Now, on with the example;(I am only using your rate, remaining term, and balance, the program will tell me the amort. payment for principal and interest only)
#1----$38,000----22yrs—30 fix
#2----$55,000----29yrs—30 fix
#3----$22,500----5yrs----15 fix(guess)

And here is what I would offer the client (for free and secure)for a one year contract in which I would prepay one year of his payments on each (at a discount)which would gladly be accepted by his bank or other lender. For sake of being conservative we will assume I negotiate only a 6% discount.

----current payment-------new payment
-----month/ year----------month/year
ttl 942.17/$11,306.04—$929.41/11,152.92

------Client Savings
—month/year-------as %

My new capital for investment as I see fit
ttl $708.79/$8,505.48

In summation I took on one client’s portfolio consisting of 3 properties carrying a balance of $115,000 without actually purchasing any paper and created for myself $8505.48 in annual cashflow to invest as I see fit which I could easily earn a %20-%30 yeild on. As for my client, well, essentially nothing has changed in his world, he has no new mortgage, no cash outlay, he still owns and manages his properties in the same manner as he did before we met. From his perspective the only thing different is a rosier financial statement, higher networth, he has a new-found friend at the bank, and his annual debt service was just reduced (free of charge) by $153.12 or %1.373 just for changing the address on his debt payment envelopes to my office. Oh yes, and he has mentally committed to calling me next year in the hope that we can do it again. I have put in about an hour at the computer, and perhaps a few hours with his financer, a few with mine (whom I won’t need in 2 years max) and there you have it. Now multiply all the above figures by 100 to get a picture of a scenario with my target market and you see why this epiphany kept me up banging away on Excell all night.

Re: Free source of capital coming soon - Posted by Brian_wa

Posted by Brian_wa on November 28, 2007 at 06:02:02:

My lender lend me money at about 6% APR hoping to make 6% in return. Now if you call them up asking for a mimimal 6% discount for prepaying them a year in advance, doesn’t that defeat the whole purpose of them lending money to me in the 1st place?

Wow, what an epiphany. A couple more like that and you can graduate with honor at the current mental institute you’re probably staying in right now.


prepay for a discount - Posted by Kristine-CA

Posted by Kristine-CA on November 27, 2007 at 09:40:08:

I’m sure some private seller carrybacks would be interested in a 12 month
prepay at a discount. But what banks or institutional lenders are giving
discounts on prepays? It’s counter to their goal…what am I missing?
And who are those banks? Kristine

Re: Free source of capital coming soon - Posted by ken in sc

Posted by ken in sc on November 27, 2007 at 05:23:14:

This is the part that intrigues me:

a one year contract in which I would prepay one year of his payments on each (at a discount)which would gladly be accepted by his bank or other lender. For sake of being conservative we will assume I negotiate only a 6% discount.

How can you be so sure that the lender will gladly accept this discount? Has anyone actually done this before? It seems like we would have heard of this if it was possible.


Why trust me? Don’t need to, I trust THEM!!! - Posted by Dan

Posted by Dan on November 26, 2007 at 19:25:04:

Hi Dan,
Interesting concept. One issue is how to get these folks to “trust” you with their money,
Also, can you consistently obtain high yields on that money to pay yourself?

That was an email I received, and here is my reply:

I am posting a new attatchment to the thread you are refering to, I think it will answer your question. While you are heading there to look at it, here’s the short answer to think over; I am trusting THEM with my money. Also, as far as the yield, ABSOLUTELY!!! In fact, if you have spent much time surfing CREOnline and don’t feel confident that there are at least ten ways that YOU can go create a 20%-30% yield for yourself in the next week then let me know and I’ll send you some of the best articles I have come across here. After reading them you too will be able to answer with a resounding “YES!!” the next time someone asks you if you can get a good yield. If it’s still seems intimidating, loan me your cash at 15%, I’ll go earn 30%-50% and you can share in my dedication. Lol, you’re on the right track, keep reading, don’t loan anyone your cash for less than a 25% yield, and make sure it’s secured by strong equity. Let me know what you think of the post, and enjoy this fine thing we call investing.

I recieved the email above from someone who reminded me of the natural human instinct of self preservation; our internal drive to be skeptical. It is built into every one of us and it is a great survival mechanism. Listen to it, respect it and, understand it, but remind yourself that it is not a reason to run from everything that sounds “a little too good to be true”. If you always run you will always have to settle for things that are average, and I would like to remind you of a few: the average home buyer pays retail, the average investor is lucky to keep pace with inflation (if they first succeed at keeping their investment from LOSING money), and the average savings account pays less than 4%. With that in mind where do things begin to sound too good to be true? Where do you just say “B.S.”, chalk it up to skeptisism, and walk away before fully understanding something that just might have been “too good to be true for someone as skeptical as you”, yet completely feasible for someone who went just a little farther and made sure they fully understood the details before moving on? I applaud the person who took the time to ask, and encourage you all to question everything until you understand it fully before passing anything up EVER in life. And do the same before committing too, failing here can be just as costly as the above.

Now to answer the question, I am not asking anyone to trust me with anything. In fact, I will be trusting them with my cash. My plan involves ME using MY money to prepay a full year of thier mortgage. How I make money is pretty complicated to say the least, but easy at the same time. The reason people would BEG me to do this with them is that I will pass on some of my earnings to them in the form of a saving on their monthly mortgage check. An example:
Mr. Ronald Frump (I loved that ficticious charachter name the first time I saw it and encourage others to use it) owns a large hotel that he currently makes a monthly payment on in the amount of $100,000, or $1,200,000 a year total. After being refered to me by a friend and deciding to use my services I walk into his bank with MY cash, prepay one full year of his mortgage payments, and now he sends me a check each month for the next twelve months in the amount of $95,000, for a total of $1,140,000. Thats it. He wins to the tune of $60,000 a year (more if every month he invests that $5,000 I just saved him). He never had to trust me, that word shouldn’t exist in the business world.(Heck, if he was willing to trust me I’d pay him 12% gauranteed and I’d go use it to earn 30% or more but I would never ask him to.)
I hope that answers the question, as far as how I plan to do all this I need to run it by a few gurus here, have them help me put it in plain english and then I’d love to share it with all of you for free. So please, help me get them interestid in doing a serious analysis on this one, because its NOT “to good to be true”