Is For Sale By Owner The Best Place to Find Notes?

One of the most common items new note brokers run into is they start seeing the “For Sale By Owner” or FSBO signs pop up around them.

Granted, those signs have always been popping up, but now that you are in the note business you begin to see some additional opportunities.

But are they good opportunities?

The existence of a “For Sale By Owner” sign does not necessarily equal a potential cash flow note deal.

If anything, it may be a distraction.

Let me explain.

1.  “For Sale By Owner” does not mean the seller is willing to owner finance. It just means that they are attempting to sell the house without using the services of a Realtor. It could be they are trying to make a few extra bucks. If that is the case, they will most likely not be interested in carrying back a note (and then selling that note at a discount).

2. “For Sale By Owner” does not mean they have the ability to carry back a note. In other words, there is no guarantee the seller has enough equity to make for a viable note sale. It is more likely they have a large underlying lien (bank loan) that they need to pay off. Could be another reason they are trying to cut out a Real Estate Agent and keep the fee.

3.  Sometimes the reason someone is selling “By Owner” is that they did not believe the real value their home was worth. A real estate professional may have told them what the value was, but the seller is trying to sell for more than that (above the fair market value).

4.  Just because the property is for sale by owner, does not mean that the potential buyer has any need for owner financing. The sale could end up involving a bank loan or even a cash sale. In either case, there never would be a private note created; to be later purchased/brokered.

5.  At this point, there are very few Note Buyers that are interested in a “simultaneous closing.” A simo is where the Funder purchases the note without any seasoning (or payments having been made). Many people want money now – which is why they are more apt to take a slightly lower cash offer than deal with the hassle of selling a note later.

It is not that “For Sale By Owner” properties do not have the potential to be notes – some do. But most do not.

Do you want to spend your valuable time looking for notes that are already in existence or do you want to spend your time looking for deals that may be created.

I spent a lot of time with “For Sale By Owners” when I was first starting out.

It was a great experience builder and my best financial calculator got quite the workout. But in the end, I would guess I only closed 1 out of 100 people that I actually spoke with. (1 out of 500 that I contacted and never heard back from). And that was during a time that simultaneous closings were popular – those numbers would be even less now! (See the article Selling Mortgage Notes: Where Have All the Simos Gone?).

If you do come across a “For Sale By Owner,” it is a good idea to simply let them know what you do.

Don’t spend a lot of time – again a note may never be created. Send the seller a card or direct them to a an article on your note business website. Keep them on your radar and see if the property sells with some sort of owner financing. If it does, now you have something to work with. Or improve your odds by targeting sellers that have already indicated they have an interest in offering seller financing (see the article Finding Mortgage Notes with Reverse Ad Marketing).

Focusing your marketing efforts looking for existing notes (as opposed to notes that may be created) will always yield better results…and profits!

Do Some Investors Pay Par Pricing When Buying Mortgage Notes?

Recently we received a question in the Finding Cash Flow Notes training course related to “par pricing” or “discount” when buying mortgage notes.

First off, here is the Note Broker Question…

Hello and thank you two for all your help. My question is why would a note investor pay par for a note?

I’ve been speaking with a person who helps their clients use OWC (Owner Will Carry). I was informed they are working with a note investor that is willing to buy a note for par.

I don’t understand why an investor would do that since they aren’t making any return. Do you have any insight into this?

And Now The Note Buyer Answer:

It is not impossible for a note investor to pay par, just very rare.

First off, there are some costs to close the deal (appraisal, title, recording fees, etc). So at the very least there is a discount to cover those expenses.

Let’s say it cost the note buyer $1,500 in closing costs. They are going to at least discount the note $1,500 to help cover those costs.

That said, the only reason an investor would pay par is that they are happy with the face rate of the promissory note as their return.

If they buy a note that has the face rate of 12%, they will earn 12% on their money (minus the closing costs).

Par Pricing Example When Buying Mortgage Notes

For example, let’s say someone has the following note (with an acceptable LTV and ITV):

• 200 payments remaining
• $525.00 monthly payment
• $40,576.92 – Current Balance
• 14% face rate

If an investor purchased the above note for par (100 cents on the dollar) they would pay $40,576.92.

Now, let’s assume the investor had $1,500 in closing cost (that they did not pass on to the seller of the note). The investor’s “real” return would look like this….

• 200 payments remaining
• $525.00 monthly payment
• $42,076.92 – Amount Invested ($40,576.92 Purchase Price + $1,500 Closing Costs)
• 13.33% Rate of Return

So, if an investor were to pay “par” for the 14% note, after paying closing costs, the investor would still realize a yield of over 13%. Not a bad return.

The reason you don’t see this often is threefold:

1. There are very few notes written at a rate private mortgage investors want to earn;
2. If the note pays off right away a note buyer wants to at least recoup their costs since they won’t be able to earn a return over time; and
3. Most sellers will accept some reasonable level of discount or pay costs.

There are many ways to get closer to par pricing that don’t involve a “full purchase.” Front-end partials, split partials, and even staged payouts are several options, but those are topics for another day (or check out the Mastering Partials Module in the Finding Cash Flow Notes Training)!

Additional Articles on Discounting Mortgage Notes

How Partials Reduce Note Discount When Selling Mortgages

Calculating Cash Flow Notes for LTV and ITV

What is the Face Rate of a Note?

What’s Your Discount?

 

Evaluate a Cash Flow Note In 60 Seconds or Less

Ever feel like you spend too much time determining if you have a viable seller financed cash flow note to either broker or keep for yourself?

Not me. I tend to look over a real estate note and make a pretty rapid decision.

So, how do I do it?

First off, I tend to go for the big stuff first. You know, 30,000 foot level. It is easy to get caught up in the details that won’t really matter when it comes times to make a decision.

But let me back up for just a minute and explain what I mean by… Read more

Finding Notes: An Interview With Mike Wood of NoteDocs

Want to find seller carryback notes? Check out this interview with Mike Wood of NoteDocs, a company specializing in providing private mortgage note holder leads to note brokers.

What is the current focus of NoteDocs?

Mike Wood: The current focus of NoteDocs is to offer two services to note brokers in the cash flow notes industry. First we strive to offer noteholder lead data that provides quality leads for those interested in doing direct mail campaigns.

Second, I personally strive to provide quality content to help teach those who are starting a new business.

We seek to provide an improved list over the norm by doing the following:

i. Removing duplicate names and addresses so you only pay once for a name

ii. We clean the list so that you only have leads for first position notes

iii. We only provide residential seller carry back notes

iv. All of our data is specifically “seller” carry and not created by local lenders

How did you get your start in the note business?

I started close to 10 years ago when I met Talmadge Bell. He taught me how to market and the potential of the industry and introduced me to several of the top people in the industry. I continued to grow my business to eventually create my own notes and then saw the need for a better list provider and took on the challenge of being that provider. My focus has slowly changed to mainly manage the list service so I can be sure to keep up a high quality service.

What unique benefits does NoteDocs provide?

In addition to the specialized list that so many need we also offer 2 for 1 lead replacement. We understand that this industry has “stagnant” data since the information comes from public record with no updating so there will be undeliverable returns on mailers. We feel that offering this lead replacement is a good service that can help lessen the pain of marketing and encourage marketers to keep up their efforts and find success.

What type of notes or transactions will your company consider funding? (Location, size, property type, credit, LTV, seasoning, etc.)

We are not a big buyer in the industry right now and I tend to lean to a conservative side on investments. I would only look at small notes under $20,000 face value and would likely only buy after talking to the payors.

What type of note deals would just waste your time?

Delinquent notes.

When I do look at investments I am interested in those that feel very comfortable and that means they must be up to date. You know the kind, the ones nobody wants to sell. Small notes of this type might interest me.

What do you consider the best methods for finding note deals?

I would say the ultimate best strategy for finding notes deals is to work with the seller to create it. Eddie Speed has helped me see the vision of this and the value in such a strategy especially in today’s market.

Aside from being there at the creation I would say the next best method for finding notes is to build a referral pipeline. Getting leads from a referral source with whom you have a good rapport will always be your best bet.

If you are going to do direct mail then you need to understand that it is a numbers game and requires a lot of mailing to many individuals over time. the best strategy there is to build a big list, continue building it and when mailing any item have something that identifies you so they become familiar with your “mark”.

How do you handle commissions to note brokers or consultants?

I have worked different ways with commissions on deals I have done over the years. Since I don’t do a lot of buying right now I would say simply that I would give my offer on any notes presented and let the broker determine their commission before making an offer to the seller. For our lead service I am willing to pay a 20% commission to anybody who sends regular referrals to our company. I just ask that a discussion be made ahead of time and that referred clients make it clear who referred them.

What advice would you give to new professionals just starting out in the industry?

Basic business advice. I currently coach individuals on starting their own business and have done this for many years. I think the advice I would give for this one is similar to any business. Treat it like a business. Know that you will have to work for many weeks or months before seeing a return and commit to it. If you are just “trying it out” you are not in business and you will fail. I don’t see any point in sugar coating it.

What is the most common business mistake you see people make?

Not giving it your all.

I guess it comes down to faith. if you do not truly believe in yourself and what you are doing then you are going to see more struggles and you will see each challenge as a road block. Accept that you are taking a different route than you have before, there are new things to learn. It will NOT be easy but if you are willing to truly give it your all you will be successful. I see too many people who want the different result but are not willing to really DO what is needed to get it.

Given the current economy, have you made any changes in the way you transact business?

Yes I have but perhaps not what you might think. I recognize that he current economy can only strengthen this industry. What I have done different is to get more involved and write more about the benefits and how to truly become successful. I figure if I can get the word out more then more people will listen and recognize the importance of moving on the opportunity now.

Where can someone contact you to obtain more information?

Through my website at www.NoteDocs.com

You can find my phone number and email there. The best option is to contact me through email, mike@notedocs.com since I do a lot of consulting and I spend much of my time on the phone and in meetings but if you leave me a message you will get a return call.

Is there anything else you would like to share with readers at Note Investor?

Simply that there are many opportunities for those who seek them. There is a lot to worry about in today’s world but there is much good as well and I feel very strongly that if you focus your efforts and believe you can make it happen you will see success.

I am personally a very religious person and feel strongly that we all should do what we can to serve others and while you may be looking for solutions for your own situation I would also encourage you to seek the benefits of serving others. Let’s take care of our fellow man as we work to build anything in this life.

Five Tips To Keep Your Note Business Professional

Certainly the most popular question among note brokers (experienced and otherwise) is, “How can I find more notes?”

What many people don’t ask is, “How can I have a professional note business?”

The reason I think this is important is that one can impact the other. Keep you business professional and, surprisingly enough, some deals will actually find you.

So, how do you make sure you have a “professional” image in the marketplace? Make sure you are following these…

5 Tips for a Professional Note Business

1. Do What You Say

It seems like such a simple thing. If you say you are going to call someone at 3:00pm, you call at 3:00pm. If you can’t make that time, you call them and let them know (in advance). The same goes for meeting someone in person. Not to overstate the obvious, but you will be judged on what you said you would do more than what you didn’t address at all. – Be a person known for keeping their word.

2. Follow-up In Writing

Sure, most note deals will be made on the phone. The initial info gathering all the way to an offer. But…even if the note seller turns you down on the phone, you should ALWAYS follow-up your offer in writing. It makes it real. I have had many sellers say “no” and stuff that written offer in a desk…only to sell to me at a later date.

3. Avoid the “Freebees”

I think it is great you can jump on to VistaPrint.com and print up some business cards. Just pony up the extra couple bucks and lose the “Printed by VistaPrint” on the back of your card. It just looks cheesy. And while I am on the subject, avoid printing your cards on your own printer. That card stock is just too thin to be impressive. The same is true for free websites (if you are looking for great note site ideas, check out NoteBuyerSites.com).

4. Muzzle the Dog*

Too many times I have heard someone on a phone call and heard a dog barking in the background, kids yelling, or the television on. Really? This is how you want to present yourself? Make sure you are in a quiet place when you either accept or return a call.

*When I think about getting rid of all background noise, I call it “Muzzle the Dog.” Saying “Muzzle the Kids” would just get me in trouble with someone I am sure.

5. Dress The Part

Ok, I get that you can do this business in a pair of pajamas in front of your computer. That does not make it the right thing to do. Put on some big boy pants and start dressing the part, even at home. No, you don’t have to put on that three-piece suit, but at least make an effort. I know it sounds stupid, but I swear to this day sellers can “hear” what you are wearing in your voice. Furthermore, if you are meeting someone in person; never be the least dressed – business casual for the minimum is always a good call (especially for your first meeting).

There you have it. Five tips or rules that will elevate you above 80% of all the  so-called “professionals” out there – in any industry.

Selling Mortgage Notes? Find the Right Note Buyer!

Note Investors fall into one of four groups, but which one is right for you? Safe to say it’s not “The Posers!”

Here’s a look at each group including tips for finding and selecting the best note buyer.

Read more

Should I Visit The Courthouse to Find Cash Flow Notes?

Wondering if courthouse research is a good for finding notes? It seems this question is making the rounds again, which is undoubtedly due to someone selling a “How To Find Notes at the Courthouse” training course for note brokers.

Let me start by asking a question in return.

Pardon my directness but… What year are we in? Is it 1981 or 2011? Read more

How to Build a Note Business Website in 7 Steps

Why do you need a website for your note business?

There are over 239 million users online making up 77% of the US population according to Internet Word Stats – and that number is only growing!

With potential customers online there are great reasons for note buyers and note brokers to build a website. Your site will Read more

Discover Real Estate Notes – Interview With Lisa Moren Bromma

Looking for marketing expertise? Lisa Moren Bromma has been finding cash flow notes for over twenty years.

In addition to buying real estate notes as a private investor she has provided marketing consulting to the nation’s top institutional note buyers.

The author of several acclaimed books published by McGraw Hill and a past board member of the National Association of Real Estate Investors, she will wow you with her knowledge and dynamic presentation skills. Read more

The Need for a Solid Note Business Website

I think we can all agree that the web is not a “fad” nor is it going anywhere in our lifetime.

I think it is also safe to say that there really is not any business on this earth that can’t directly benefit by managing a strong web presence. That of course applies to the note business!

So what stops note brokers from creating a web presence that can help them

Find Cash Flow Notes and Get More Business?

Here are a few “objections” that keep people from getting deals online.

“I am in a people business”

Sure, I get it. You like face-to-face interaction. But how are they going to find you? Are you going to work 24/7, running around every major city, diner and Starbucks trying to connect with someone who might need your services?

A website works full-time. And the best part is once it’s properly set-up and maintained it can help people find you. Not having a website for your note business is like having a car without an engine…or tires. You can sit in your garage but no one will ever see you.

“It is too hard to build a note buyer website”

No. It is too hard to build a rocket ship – websites have come a long way. Granted, it used to be really hard and really expensive. Have the time to learn it? Go for it.

Check out anything that is WordPress related…you will be surprised and pleased with the power of this platform. (Just avoid the “free” accounts and plan on hosting it yourself).

“I built a free website from my Internet provider and it sucks”

Yea, that whole “free” thing doesn’t typically work out well does it? While there are some decent free templates out there, understand it does take some savvy and time to figure out how to make it look professional.

You don’t have to spend an arm and a leg to get a professional looking site. You just need to know where to look.

“But I have Facebook”

Really, that is going to be how you plan on getting business? Hoping someone checking out your Cat Video also needs to sell a note?

Look, Facebook is a blast, and you certainly need a Fan Page for your business as a form of social proof – but don’t kid yourself into thinking that it is a true lead source.

“But I have LinkedIn”

So does my grandfather but potential leads still need to go somewhere. LinkedIn is a great place for just that, linking to other people (especially professional referral sources). But in the end, they need to go somewhere to take action and that would be your website.

“I have a site, just no traffic”

Yea, we hear that a lot. Just putting up a website is only half the picture. You need to have engaging articles and a way to collect names/prospects. You can’t just build a site and forget about it. You need to add content on a consistent basis using search engine optimization techniques (another reason Word Press is a great option).

Don’t worry; it is not like you need to write a novel or anything. Just write down your most recent conversation with a prospect. Chances are these frequently asked questions could transcend into 3-4 new articles for you.

You Decide

Frankly, you are either trying to get business or you are not. If you knew that 77% of your potential customers were going to be at your local park this Saturday, would you be there? I hope so.

Well guess what? They are all on the Internet!

According to Internet World Stats that’s the percentage people in the US that are online (and it is only growing) – so find a way to talk to them!

The Note Buyer Sites Solution

Looking for a solution that won’t break the bank? These 5 Note Buyer Sites provide a professional and effective option that will get you online in less than 72 hours. Just click the photo below to take a tour of these new sites designed just for note buyers and brokers.

Click on the banner below to check out some turn-key websites!

Next Page »