We are often asked,

“How can I make it in the note business?”

That usually prompts us to ask a couple of questions to understand what, specifically, they mean by the question.

Some people want to buy their own cash flow notes for investment purposes and interest income.

Others simply want to act as a note broker or consultant; passing notes on to a note buyer and collecting a referral fee.

In either case, the answer is pretty much the same and can be reduced to five words.

“Treat It Like a Business!”

I have to admit, the note industry, in essence, is really not that hard. I don’t want to say, “If I can do it, anyone can do it” but it is probably true.

I was never really good at math, or at least I wasn’t in school. The basic “math” behind the note industry is not terribly difficult if you have a couple hours and a financial calculator. Matter of fact, if you are just brokering notes on to a note investor, they will pretty much crunch all the numbers for you – just find the note.

Note Business Reality

Despite what some people may tell you on television or through slick marketing, there are not 10 million notes in your neighborhood and all you have to do is list them online and make $100K.

There are plenty of notes out there and there are plenty of Funders and private investors that are looking to buy mortgage notes – but it does take some concentrated marketing to find them.

Finding Cash Flow Notes

There are many ways to find notes. You can take an ad out in the paper, you can direct mail note holders, you can network with professionals, and even “reverse” market the people that may be taking back notes in the near future.

What determines which method you use to find notes is largely based on your business model. Items like your marketing budget and personal preference will come into play.

No matter what the marketing technique or whether you choose to hold or broker notes, remember it is a business.

You will want to set up space in your home (most people work out of their home) and you will want to measure the hits (and misses) of your marketing efforts (so you can tweak and make your processes more and more profitable).

Above all, you need to have direct access to note buyers, solid marketing materials, and good training.

We created the Finding Cash Flow Notes training for those individuals that were looking to work in the note industry and treat it like a business. In our training we provide proven marketing materials you can use today (just add your own name). Learn what has (and hasn’t) worked for us over the past two decades. More importantly, learn what is working in today’s note business.

Another method is to simply go for an Early Payment With Incentive.

To this day, the following situation is still my favorite example of this method.

It was late December and we were looking at a small note with a $10,000 balance. The payment was only $132.15 per month with a 10% interest rate and 120 payments left.

The note had been purchased at a discount for $6,000, which made for a 24% anticipated return.

Not bad…but we could do better! After talking to the payer we saw an opportunity to get an early payoff. They were very excited about their football team making it to the Super Bowl.

My comment was, “Tell you what. If you can pay off your note, in full, before the Super Bowl, we will give you a big screen TV to watch the game.”

They did payoff the note in full and received their TV!

So here is the math (and the chance for someone to win free access to Finding Cash Flow Notes)…

The payer made two payments on the $10,000 note bringing the balance to $9901.96.

We purchased a big screen television for $2,000.

That means we received a NET payoff  of $7,901.96.

The full payoff was made at the two-month mark so we also received two payments of $132.15  prior to the payoff.

What was the yield?

The first person to leave a comment telling me the note buyer “return” wins free access to Finding Cash Flow Notes.

The fine print for calculating this cash flow note:

1. First correct entry wins.

2. I will allow up to a 1% variance due to slight calculation differences.

3. Once we have a winner I will update this article with the answer including how to calculate on your best financial calculator!

Good luck!

Sure, you can’t go back to your payer/buyer and tell them to mail more money or even increase their interest rate.

Matter of fact, you purchased the note “subject to” all the terms and conditions already in place and can’t change a thing…unless the payer wants to change them!

Try this…

Offer the payer to cut the interest rate in half (face rate of the note)

if they double their payment!

Let’s say the original note is:

• 240 months at 8% on a $50,000 balance with payments of $418.22
• You buy the discounted note for $40,000, which gives you a yield of 11.20%

Not bad. But what if the buyer doubles their payments to $836.44 and you cut their rate to 4%?

• First off the buyer pays off sooner….way sooner. In this case instead of 240 months, the buyer pays off in 67. That is a pretty good incentive for the payer.
• They also save big on their overall interest payment for the life of the note (about $44,518.00)

But, what about the note investor?

• The return goes UP to 12.70% (67 payments, $40K invested, payments of $836.44)

This truly is a win-win for both the payer and the note buyer. Not only did it bump up your return, you now have full use of the money to reinvest in just over five years instead of twenty! This is just one of many strategies available when calculating cash flow notes!

Over the past few years, we have been inundated with Life Settlement requests. Fortunately for us, I find them very interesting and fun to work: I say fortunately, because the commissions are excellent. I have also discovered that many of the players you’d think would be familiar with Life Settlement opportunities are fairly uneducated about them. This creates delicious opportunities for you.

Let me give you a brief overview of Life Settlement options and how they work.

A Life Settlement is the sale of an active life insurance policy by the insured. For many a policyholder, selling his policy makes total sense. Here are some of the reasons:

• The policy has become too expensive to maintain.
• Allowing his policy to lapse provides little or no benefit.
• Settlement amount is always greater than the cash surrender value in a policy.
• Perhaps her day-to-day expenses are not easily met.
• A decline in his health has increased his medical expenses.
• Her health and long-term care have become a financial problem.
• He is afraid of leaving his family burdened with debt.
• New tax laws or estate changes have made her current life insurance coverage excessive.
• The policyholder is living in an assisted care facility and has exhausted his ability to pay for his residential care.
• Perhaps he needs alternative funding for more suitable financial products.

Maybe his family is grown and he doesn’t need the amount of coverage he once needed to ensure their security.

By selling his policy, your client eliminates the expense of premium payments, is better able to pay day-to-day expenses, preserves his high quality of life, enjoys increased financial liquidity in mercurial economic times, and maintains control over his own affairs before passing. This is tremendous peace of mind for many of our seniors.

The institutional investors who purchase the policies then take over paying the premiums, and they become the beneficiary of the policy upon the death of the insured. Naturally, the policies are sold at a discount, but still at a greater amount than the “surrender” value offered by the insurance companies.

Consider this statistic…

approximately 88 per cent (I’ve heard as high as 93 per cent) of life insurance policies never result in a death claim: they are allowed to lapse or are surrendered.

Consider, also, this statistic…

currently, the senior market is estimated to have over $500 billion of in-force life insurance policies.

Remember, with the “graying of America,” the senior market is burgeoning and formidable.

For many years, the insurance companies were essentially the only market for this commodity in which an individual has probably been investing for years. The advent of a secondary market has now created a free market for policy owners to value their insurance just as they do other financial assets.

Ideal candidates for selling Life Insurance policies are:

• over 65 years of age,
• with a life insurance policy of at least $250,000 (smaller policies can also be marketed), and
• a life expectancy of 15 years or less.

As a cash flow note broker, you do not need to question the insured regarding his health. The professionals will evaluate his medical status as part of their due diligence.

You can download the simple forms for Life Settlements from our website then email or fax them to our office at the contact information below.

You can learn more about the process, finding clients and marketing in our book, Life Settlements: Vast Wealth Opportunities with a Timely Income Stream, available on this website.

Commissions…(you did want to know about those, didn’t you???)…are excellent. Maximum commission is about 10 per cent of the face value of the policy, OR one third of what is funded…whichever is less. Naturally, as with any other debt instrument, you can negotiate your fee to make a deal work rather than lose the deal.

As a cash flow broker working with Life Settlement, it is important that you:

• Do not quote rates.

• Be financially realistic when speaking with your client. This will come with experience, but, basically, the shorter the life expectancy (“LE”), the higher the likely offers.

• Let your client know that it will take 30-60 days to get back all the offers and go through a few rounds of negotiations with all bidders. The speed with which the doctors get us their medical reports also affects the length of the process.

• Make sure your client is not just “shopping” his policy around—the funders spend a great deal of time and effort analyzing and underwriting each policy, not to mention obtaining medical reports, etc. If you burn them a few times, they are not likely to make much of an effort when you bring them future clients.

As you become a trusted cash flow advisor, I think you will find adding Life Settlements to your arsenal will be interesting and very lucrative. You should find everything you need to broker these valuable debt instruments in our Life Settlements book: we outline the process and offer application forms and sample marketing letters. Good hunting!

About the Author: Marilyn and Larry Singer, DCFS, CMA are Master Consultants and members of The Million Dollar Club. Marilyn has over 35 years marketing experience and received Granite TV’s Salesperson of the year; WB Network Most Tenacious Salesperson of the Year; and Sinclair Broadcasting’s $2 Million Sales Award. She is a certified image consultant and teaches Presentation Skills and real estate investment nationally.

Larry is an American Cash flow Association visiting instructor, lecturer, and 2004 ACFC Instructor of the Year. He is also an instructor for Fred Pryor Seminar Group. With over 34 years in advertising and marketing, Larry is also is an adjunct professor at the University of Buffalo in its Communication department. Larry and Marilyn own Capital Funding Group division of Capital Asset Funding Inc., Buffalo New York. Phone 716/570-8926, Fax 716/833-3865, e-mail cfsinger@adelphia.net or mpsinger@roadrunner.com, and online at www.capitalforgrowth.com.

They currently have two book in Note Investor bookstore: the 3rd Edition of Brokering Delinquent Debt for Fun and Profit and Life Settlements: Vast Wealth Opportunities with a Timely Income Stream. They have just released their first general audience book, Get Out of Your Way—Success is Right Behind You, a motivational book, for sale on Amazon as well as in national bookstores.

They batted around terms and strategies that left my head spinning and my hand sore from writing down as many notes as possible.

I distinctly remember, just before ending the day, someone (not me) made a comment that brought everything to an abrupt halt.

“If I buy a note that pays for 10 years at 12%, I don’t have to worry about investing again for another 10 years.”

What got me was the number of people that agreed. Buy a cash flow note, collect payments for 10 years – THEN buy another note and enjoy another 10 years at 12% (or whatever)???!!!

Surely these people knew the math?

Well, some did, but several did not. Here is what I told them…

You don’t get 12% for the entire ten years. Actually, if you don’t reinvest the money, you will only earn around 5.45% (per the example we were using). Here is the math.

The Note

120 payments

9% Face Rate

$39,470.85 Balance

$500 month

The Purchase

120 Payments

12% Yield

$34,850.26 Invested

$500 month

Think of the purchase as 120 mini buys. Each time you receive a payment, you have been paid in full for that specific segment. If you just stuff the money in your mattress, the clock stops ticking.

The Reality

Here is what it looks like if you do nothing with the payments each month for 10 years.

N                                    I/yr                        PV                        PMT                        FV

120 payments                5.45%——–$34,850.26               0                        $60,0000

You MUST reinvest to maintain the yield you think you are getting – especially when buying a cash flow that pays back incrementally.

Needless to say, a few left the meeting scratching their heads while others were ready to reinvest right away. On the plus side, I didn’t have to pay for my own dinner that night!

Looking for a solid course on Finding Cash Flow Notes? Just click the link to find out more, including helpful videos!

This full day event is sponsored by SJREI, the bay area’s premier real estate investor’s association at the at the Sequoia Yacht Club in Redwood City, California.

Join women real estate investors as they share their success strategies at the event entitled,  Steel Toed Stilettos: Real Women Own Real Estate.  Here’s a look at the line-up and topics:

Wise Women Invest in Real Estate - By: Lisa Moren Bromma

• Why I buy and hold real estate versus buying and flipping.
• Property Management from afar. Proven tips and techniques to keep your investment properties rented no matter where they are located.
• (3) Clauses every lease must have to save your sanity.
• How to produce more income from existing tenants.
• Exit strategies & how to create dependable income from real estate I no longer want to hold, has been depreciated out, or no longer meets my criteria in this marketplace.

Finding the Money, Making the Deal – By: Jenn Dizmang

• When the banks aren’t lending, how to continue to do deals with private money
• How to FIND private money to fund a deal
• How to structure a deal with an IRA: partnering or non-recourse lending
• How a real estate portfolio can secure your future

Using Owner Financing to Achieve Your Goals – By: Tracy Z. Rewey

• Buy real estate with favorable terms…even when banks say No!
• Sell property fast…for full market value
• Safely create real estate notes…and sell to investors for top dollar
• Buy discounted notes for long term income…without the landlord headaches
• Refer notes to investors…and earn referral fees for immediate income

Invest, Grow Rich, and Look Ten Years Younger: How to Dissect Marketing Hype and Find the Real Deal - By: Susan Hare

• Secrets of the Craft: Marketing and Social Media
• How to inoculate yourself from emotional marketing
• Keys to sniffing out hype versus an authentically good deal
• Using marketing to your advantage
• How to market yourself effectively & appropriately

How to Establish Goals Personally and Professionally as a Real Estate Investor, and How to Execute on Them – By: Geraldine Barry

Many real estate investors, particularly those who work full time, spread themselves too thin – not being effective.  This impacts their ability to grow, and move their business forward.  In this presentation you will learn the following:

• How I moved from a part-time investor to full time, and then eliminated the need for my husband & I to have corporate jobs.
• The three strategies you as an investor can implement to move your business forward quickly and efficiently.
• Strategies for maximizing your time so you can get results.

Rich Moms are in Real Estate

A panel discussion with six women, some with kids and partners, some without, but all who’ve made a success in real estate

• How to make real estate work part time as a family business.
• How to reinvent yourself in a dramatically changing environment.
• How real estate can facilitate you pursuing your dreams by creating cashflow and financial security.
• Looking for an opportunity to meet new people, network, learn top notch real estate strategies for today’s market.

For more information or to register for the event visit SJREI online at http://sjrei.org/women/.

Well…sort of.

Last weekend we were asked to present our 5 strategies for moving from note finder to note investor.  The seminar was sponsored by Entrust, a self directed retirement account administrator, and held aboard a Royal Caribbean ship sailing to Cozumel.  (Not a bad way to spend a couple days working right?)

We were honored to share the stage with the likes of Dyches Boddiford, Larry Loftis, and other long time investors.  In fact most of the audience could have stepped up on stage and presented their strategies for buying paper, real estate, and other alternative investments to supercharge their retirement.

Note ownership and long term interest income are truly attainable with little to no investment of your own cash funds. But how do note brokers start making the move to note owner? Here’s a recap of the strategies we shared on how to invest using paper:

1. Refer Cash Flow Notes to Gain Knowledge, Pay Overhead and Generate Leads

Referring deals to an investor for a fee at closing will supply insights and knowledge, enabling you to earn while you learn. We all have marketing costs, overhead, and personal expenses so referring notes to “earn a living” or a cash fee at closing makes good sense.

It also provides the marketing machine to generate leads that can be matched with an institutional investor, a partial investor with tail-end opportunities, or your own portfolio. Even when buying a majority of notes for long term holding, it still proves useful to broker a portion. Not all notes will fit your parameters and it helps to stay apprised of current market conditions to keep pricing competitive and personal portfolios liquid.

2. Participate in Future Payments or Tail-ends

The “Buy Full – Sell Short” strategy is one of the best ways to initiate note ownership. This technique is based on your purchase of the full payment stream from the note holder/seller with the resale of a shorter payment stream or partial to an investor.

This enables you to earn a fee on the initial sale of the partial to the investor AND keep a portion of the future payment stream as a personal wealth building vehicle. These payments remaining after a partial investment has paid off are also known as the tail-end or back-end of a cash flow note.

Be sure to read Building Residual Income with Notes for a real life example of $1,000 per month for 10 years for all the details and calculations!

3. Create Real Estate Notes

When selling real estate, mobile homes or other property consider creating your own notes. Converting all or a portion of profits from the sale of property to long term financing provides an opportunity to receive ongoing payments at an interest rate and terms that meet your needs.

Another option is to purchase property using owner financing. As banks tighten lending requirements seller-held paper is on the rise.

4. Utilize Self Directed Retirement Account Funds

Did you know it was possible to use your IRA, Roth, Simple, SEP and/or 401k retirement account to buy notes and real estate? Tired of dismal returns in the stock market many investors are turning to notes and real estate through self-directed retirement account administrators. This provides access to capital and takes advantage of earning money tax deferred or in the case of a ROTH, tax free!

This concept allows us to aggressively pursue small balance notes for double to triple digit yields backed by real estate. You will find notes under $30,000 are often overlooked by larger institutional investors due to their balance minimums.

5. Leveraging and OPM

Leveraging and using other people’s money (OPM) is a familiar concept to real estate investors allowing properties to be purchased and financed with a minimal investment. Using a similar concept, there are investors that will lend money secured by an assignment of the note and mortgage (or deed of trust) through a line of credit or the hypothecation of an individual note.

Challenge yourself to make note ownership part of your wealth building plan. If you would like to learn more about these strategies be sure to check out the Finding Cash Flow Notes Training program!

You won’t be sorry when those monthly payments and unexpected payoffs start arriving in your mail box.

Unless your Warren Buffet or Oprah Winfrey, you will need access to investors to be a successful note broker.

Even if you buy notes yourself, there will be times a deal does not meet your parameters or funds are tied up elsewhere. Just remember these…

Rules for Working with Note Buyers

1. Get Direct – You should be the only “middleman” between the seller and the note buyer or funder. The one acceptable “degree of separation” would be working with a qualified Master Consultant that provides needed expertise or access to specialized investment funds.  Grab your copy of the directory of note buyers if you are looking for the real deal.

2. Over Deliver – Go the extra mile to research details online including property information, copies of documents, property tax statements, photos, and/or current estimated values whenever possible.

3. Be Truthful – Do not withhold information from the investor. An omission is equivalent to a lie in the eyes of an investor. If you find out the seller misled you be sure to let the investor know right away.

4. Understand the Process – Think like a note investor and anticipate questions they might pose. Know the steps for closing a transaction and prepare the seller for reasonable timelines. Understand the challenges that can arise from poor credit, low appraisals, and deficit documentation.

5. He With The Gold Makes The Rules – Treat the investor with respect. Ultimately it is their money on the line if a deal goes sideways. We want longevity in our relationships with funders!

If you apply these five simple rules you will gain respect and get results when working with note buyers.

It can also be the most difficult. Why?

Well it can seem a lot like looking for the proverbial needle in a haystack.

The Challenge with Real Estate Notes

On average about 6% of residential real estate sales involve some sort of seller financing. And it’s the seller carry-back that makes up the lion’s share of the cash flow note business.

Now it can be more or less depending on where you live. It’s also higher in a tough economy (like now) or with hard to finance properties (land, mobile homes, commercial, businesses, etc).

But that 6% has been a pretty reliable statistic for the 20+ years I’ve been buying and selling notes. I know six percent may seem like a small number but it can really add up.

Cash Flow Note Statistics

Just take a look at residential sales for one year. In 2009 there were 5.156 million existing home sales units with a median price of $172,500 [Source: National Association of Realtors®].

If we apply the 6% seller financing average that results in roughly 53.3 billion dollars of cash flow notes created in just one year. That number grows substantially when you combine with the notes created on new homes, land, mobile homes, business notes, and others not included in this NAR report.

So how do you find the needle in a haystack?

The Solution to Finding Cash Flow Notes

It’s a waste of valuable time and money to market your note buying services to the 94% of the population that don’t hold a note.

To find cash flow notes you need a powerful magnet…and that’s targeted marketing.

A marketing plan targeted solely to the needs of sellers holding cash flow notes is what will get your phone ringing and your pipeline full of deals.

To get more details on our five favorite methods for Finding Cash Flow Notes watch this special free video:

You can also read these additional articles on:

Finding Cash Flow Notes

Note Broker Questions: How Do I find Notes on a Budget?

Should I Visit the Courthouse to Find Cash Flow Notes?

Find Cash Flow Notes with Note Seller Lists