Real Estate Investing Coaching - Brian Gibbons

Are you Creating Notes and Making these 3 Blunders?

Mistake 1. Structuring a note with a short term balloon for less than 7 years. I am seeing more and more notes where the balloon is 3 years or less, and the note seller has high expectations of getting "top dollar" for their note. I know the "gurus" will tout this as a viable exit strategy, but it in the real world, it does not go from the podium to the pavement.

The fantasy is that the payor will be able to refinance in 3 years, and you will get your lump sum payment. This is often a "selling point" note sellers say to me. "Buy my note now, and in three years or less, you will get all your money back, plus the discount". The problem is that if your payors could not get financing originally, what makes you think they will get be able to get financing in 3 years?

More importantly, in today's market, what are the interest rates going to be in 3 years, and will there even be money available for refinancing. In today's market , the answers are "I don't know". This is not even considering the value of the property might decline.. So why live in the illusion that cash will fall from the sky just because you have a balloon on your note

SOLUTION: If you sell your property using owner financing, make the terms realistic. Since you know refinancing in the next three years may be in doubt, why structure a note that requires it? A straight term of 20 years to 30 years is more realistic. If you must put a balloon, make it at least 7 to 10 years out. DO NOT make the note interest only. Many Note Buyers will not even consider an interest only note.

Mistake 2. Not getting AT LEAST 10% down. Even if you plan on keeping your note, having your buyers put money on the line increases your chances they will not just walk away from the note. This is important when you bring your note to a Note Buyer. "Hard equity" in the property goes a long way to make a note more valuable in the market, not to mention it is just sound investing.

SOLUTION: Demand 10% or more down.

Mistake 3. Believing if you have to foreclose, at the flick of a switch, the house will be turned back over to you in pristine condition. No repairs, no remodeling, no cleaning, painting, putting in carpet, etc. And of course there will be no holding costs or time delays. You will just foreclose one day, and sell it again the next day, right? WRONG. I read where the "average" to get a foreclosed home marketable is $12,000. I have not even mentioned insurance, vandalism, and more importantly the aggravation and time involved in a foreclosure. Successful Note Buyers take all of the above into consideration. So should you.

SOLUTION: Have a completed and reviewed credit application on your buyer and keep in contact with them regarding any changes in their status.

I see these 3 mistakes more and more, and often in combination. The note seller is then disappointed there is a heavy discount, or worse, their note is not even marketable. Do not fall into these traps, especially if you want to sell your note.

To make your note more marketable

1. Make the terms realistic

2. Get at least 10% down. And

3. Last but not least, do not visualize your getting the property back in the same condition you sold it or foreclosure being an easy no cost process.

To conclude on a positive "note", (Pardon the pun) while simultaneous closings are all but a thing of the past, good notes with 3 to 6 months seasoning are selling for good prices.

What I am also hearing more and more are that good buyers are being turned down for loans at the last minute. This would be a perfect situation to owner finance, and sell your note when it has been seasoned for several months.

However, keep in mind that even with note payors that have good credit: possible note busters include notes with short term balloons, interest only notes and notes with a low down payment .

Be realistic about the current financial environment and you can create a valuable asset with your note.

If you are selling your property using owner financing, please contact me. I will help you structure your note to give it maximum value in today's market.

If you have a question on your note or a Note to convert to cash, contact me at http://hpnotes.com/contactus.php
I will be happy to discuss your specifics.

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All rights reserved

From a Note Broker - Make Money Now in a Recession

                                                                             

Tom's ECONOMIC  OBSERVATION

                                                                       

                                   

by Tom Henderson

               

                                                                                                                                                   

The winner of the presidential election will definitely have an impact on the economy. However, no matter who wins the election, there are still realities that cannot be ignored.
1. The bailouts of Fannie Mae, AIG, etc
2. Mass infusion of "capital" into banks
3. More industries wanting money, and Congress promising to increase spending

The reality that has to be addressed is how are all these programs going to be financed, and who is going to pay for it. There are only 4 choices.
1. Direct taxation
2. Indirect taxation of borrowing
3. Indirect taxation of printing money
4. A combination of the three

All three of these methods will have as an end effect of either decreasing the supply of money for productive use, or artificially increasing the supply of money by merely printing it, thus devaluing the dollar. All are going to have the same results. Higher interest rates and/or increase demand for money, making loans harder to obtain. All of the above will have undesirable consequences leading to what could be an inflationary recession similar to what we witnessed in the latter 70s and 80s. One main difference is this time the entire world is involved. Moreover, like America, governments world wide have consumed more than the ability of producers to produce, and are going broke. Not a good sign, especially during a period of inflation.

In America, politicians are ignoring the fact that real estate prices rose artificially because real estate loans were given to anyone and everyone. These artificial high prices must adjust to reality. By trying to prevent prices from falling, the "all knowing politicians" will only prolong the eventual correction. Sooner or later real estate prices will adjust to real market value. When you consider the price of real estate is directly proportional to the financing available, and add to this axiom, financing is going to be tighter and more expensive, is there any wonder why real estate prices are declining?

Does this mean not to invest in real estate? Heavens no. It just means be sure to buy right, act out of knowledge and not out of fear or ignorance. For me, buying property at tax sales at 50% or below "market value" is one of the best strategies in today's market. Another strategy is buying property using owner financing, where you have more control of the note and terms. Both of these have excellent exit strategies no matter what the market does.

After the election, I can give a more in depth outlook as to what to expect. If you have questions or comments, contact me.
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     All rights reserved

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By popular demand, THE NOTE PROFESSOR NOTEBOOK is now available in easy, downloadable E- book form for a the low, affordable price of $39.95. Other products are also available, including HOW TO MAKE OBSCENE PROFITS with SMALL MONEY, and GUIDE FOR SECOND LIENS. There is also a FREE download of CHECK LIST FOR OWNER FINANCING.  Simply go to the NOTE BUYERS STORE. I can think of nowhere that you can find such information packed products at such incredibly low prices.  We are still working out the bugs, so if you have any problems, be sure to contact me.                                                                                 Note Buyer Store                                                

                                                                                                                                                   

Notes, the Devil is in the Details

                                       

Posted by: admin, in Documentation,  Title                                

From time to time, I like to review real estate instruments as a refresher on the fundamentals of the real estate game.  From a legal standpoint, a debt comes into being as a result of an agreement between a payor who borrows money and incurs and obligation to repay it.  The Note itself is merely legal evidence of that agreement.

As we continue on down the legal definition, an agreement can only come into existence when two or more parties agree to something; in this case a scheme for repaying the debt obligation.  Where this should be pretty straightforward, and where it once was, in recent years commencing when interest rates began to go up and loan underwriting criteria began to tighten, a spate of complex repayment terms have come into being.  Here are two:

A couple of creative terms in Notes that buyer/borrowers can try to insert into seller carry back financing are “substitution of collateral” and “built in discounting for early payment.  Being able to substitute property that has been mortgaged to secure a note for other property enables the borrower to do a couple of things. 

First, he can effectively sell the property and keep all the sale proceeds without having to use any of the money to repay his loan. And, if he wants to carry back financing himself, once the old debt has been removed, he can devise totally different terms to make a property more attractive to buyers.

Last, but not least, by transferring debt to property for which conventional financing is very difficult to obtain, such as raw land, he can make it much more attractive to would-be buyers.

What about self-discounted Notes?  Property basis is determined largely by the amount paid in cash, and the amount of original debt used to purchase it, including any existing debt that is taken over by the buyer.  When a property is re-sold, the adjusted cost basis determines the taxable profit to the seller.  So, a person could induce a buyer to buy the property for a higher price, with lower taxes at point of sale, and shortly thereafter the buyer could re-finance it and pay off the old loan at a discount that would pass along tax-free profit to him in the form of loan money that wasn’t needed to pay off the old debt.  The seller is usually induced to provide these terms when there is the prospect that he will be paid off earlier if he offers a discount.

Another wrinkle is that, if the original buyer pays of a conventional note at discount, the difference between what he owes and what he has to actually pay to have the debt removed is taxed as “discount earned” at ordinary income tax rates.  On the other hand, when an original borrower and an original seller agree to reduce the original debt, no discount earned tax applies; instead the seller reduces the gains tax he might have had to pay, and the buyer reduces his basis by the amount of the discount.