Finding Bad Cash Flow Notes

No one has ever asked us,

“How do I find BAD note deals?”

The funny part is, that as a note buyer, we see more bad deals than we do good ones.

But isn’t that just the nature of the business? Yes, but it doesn’t need to be so.

When beginners start in the note business they spend an inordinate amount of time on what we consider “bad” (or at least extremely “challenging”) deals.

These are mortgage and trust deeds that will most likely never be purchased. They include things like: Read more

How Partials Reduce Note Discount When Selling Mortgages

Is the sticker shock just too much when discounting notes?

It might be time to consider selling just some of the remaining payments.

Note buyers have long used the partial purchase to reduce their exposure or investment risk, but it also has benefits for the seller.

You see the time value of money makes payments due now more valuable than those further out in the future. The partial purchase takes advantage of this by letting the seller cash in the most valuable portion – the more immediate payments. Plus the seller gets to keep the face rate or interest rate on the Promissory note working for them on the portion they hold.

Take a look at how this works by contrasting examples of a full purchase and partial sale. Read more

How to Build MIStrust in the Note Business

Sometimes people just make more work of things than need be, and the note business is no different.

I was in the bookstore yesterday. Not looking for anything in particular, but was amazed at the amount of networking books and books in particular about how to build trust among clients and prospects.

For me, it seems easier (and more fun), to simply point out the ways you can build MIStrust.

Want to be a lousy note broker or note buyer?

Here’s how to build mistrust among note sellers and professional referrals in 12 easy steps: Read more

Buying Mortgage Notes: 7 Tips for Calculating Cash Flow Notes

If you plan on selling or buying mortgage notes the pricing will eventually come down to some important cash flow calculations.  If you get cold chills or high school flash backs thinking about math you can always leave the number crunching to the note buyers. However, I challenge you to get outside your comfort zone and give these exercises a try.

Why? Well knowledge is power and you will be able to know if you are getting a fair (or not so fair) deal when selling mortgage notes. Read more

Sell Mortgage Note to the Payer? What about Me?!

I will never forget the first time I was asked this question by a potential note seller.

“Should I offer a discount to the payer before I try selling my note?”

I was silent for what seemed like minutes. In reality, it was only a couple of seconds before I replied but during those seconds my mind was racing.

Of course I was thinking…

“If the note holder makes an offer to the payer; I may never get the deal. Matter of fact, the payer will probably even pay the seller more money than I can as the note buyer. This deal is gone.”

On the other hand, better to get it over with than have the payer find out later and sideline the whole note sale.

“Yes” I responded, “It is in both of your best interests to see if that is a viable option first.”

First, here is the mortgage note deal…

• The note balance was around $73,000.
• I was not able to pay more than $63,000*.
• He decided to offer the note payer a payoff of $65,000

*(I have rounded the numbers to make up for both ease and my memory loss ?)

Of course, the reality of the situation is that it is rare the payer will have the ability to pay off the private mortgage – even at a discount.

What happened after that was even more interesting…

The payer declined on paying off the promissory note early. Although they were interested, they were not sure “how” they could come up with the money.

The seller came back to me a couple of days later and said he was ready to proceed with me for the $63,000 purchase price.

Now, a typical note closing will take about 3-4 weeks. It really just depends on how quickly some of the due diligence can be completed (waiting for title, appraisal, etc).

Anyway, we were just about to close (about 5 days away) when the seller called and said that the payer had the money and wanted to payoff the note.

At this point, things could have turned ugly for me…

1. The seller could have pulled out of his deal with me (even though we had a binding contract).
2. He could sell the note to the payer and leave me high and dry.

So what happened on buying the note?

Well, the seller told me, “Fred, we had a deal. If there is something you can do with [payer] after you complete this note buy I would appreciate it.”

I think the seller did right by me because, in the very beginning, I did right by him. Sure, that may not always be the case with every seller, but it was here.

In the end, I allowed the payer to payoff the note at a discount right after buying the note. I received one monthly payment and accepted $65,000.

I probably could have brokered the deal and made a few more dollars, but it was important to do the right thing. It may sound old-fashioned, but I really do think things like that come around in the long run. Call it “Note Karma.”

Do you have your own Note Karma story? Share in the comments below!

Will I Have to Sell My Note at a Discount?

The most common question among note sellers is also the one that most new note brokers hope never to hear.

Although I cover numerous ways and specific scripts for answering this question in the Finding Cash Flow Notes Training, I want to address it here from a 30,000-foot level.

When dealing with the note discount question, remember three important things…

1. “Discount” is not a bad word.

Hey, in a perfect world the seller would get 100 cents on the dollars, the note buyer would make a 15% return, and the note broker would make a couple thousand dollars for putting the two together.

But all is not “perfect.” The note was probably created because something was “less than perfect” in the first place.

Maybe it was the buyer’s credit or the condition of the property. Whatever the case, the note was probably not created under “ideal” conditions. The note broker’s job is to find a way to make it work and minimize the discount to the seller.

2. You don’t make the note buying rules.

Like I mentioned above, there are a whole lot of variables that go into the discount of a note being resold. It is important that you do not put yourself in an adversarial position with the note seller.

Even if you are buying the note with your own money, you need to be on the seller’s side. You are looking for a win-win scenario. As trite as that sounds, it really will get your more deals.

That is not to suggest you put more money on the table if they deal will not warrant it. Just create a deal that is fair for both parties and you can sleep well at night.

3. The note discount is not negotiable

Some people make some mistakes in thinking that this is a negotiable item – it really isn’t. The focus should be on the amount of money the seller will receive – not what they won’t get.

I like to refer to the offer as the “fair market value” of the note. In the end, people just want to be treated fairly – and that is just good business.

So the note discount does not need to be a taboo subject. It is the elephant in the room that should be addressed head one. The less you are shocked by it, the less the seller will be.

Note Broker Marketing With Note Appraisals

Just What is a Note Appraisal and How Can it Help My Note Broker Business?

I just finished up an Opinion of Value for a real estate note down in South Florida. It was the second request for a fee based note appraisal in the past several weeks, a service that has been growing in demand.

These requests primarily result from our networking efforts and presentations at Real Estate Investment Clubs and Self-Directed Retirement Account educational workshops. Since it is fresh on my mind it seemed a good time to share some insights on using Note Appraisals in your note business. Read more

NoteWorthy Industry Achievement Award Interview

Wondering what it takes to survive in the note business for 20 years?

Read our interview with NoteWorthy Newsletter!

Fred and I have been going through work and personal items in an attempt to control the ever growing amount of “stuff”.  While sorting through the memories there were a few definite keepers.  One of these was the plaque I was honored to receive from Jon Richards, founder of the NoteWorthy Newsletter.  The inscription reads:

INDUSTRY ACHIEVEMENT AWARD
Hereby bestowed this day to:

Tracy Z

NoteWorthy National Convention
June 28, 2002

For her willingness to provide leadership, guidance and steadfastness in an industry experiencing turbulent times.  Tracy would have excelled in any industry, we thank her for choosing ours.

Presented by:
NoteWorthy Newsletter
Jon Richards, Publisher

Receiving this award was a real honor. Jon was an inspiration to both Fred and me.  In fact Jon introduced the note business to Fred in the early 90′s and if it wasn’t for that the paths of our lives might never have intersected.

Later in 2009 I was asked to participate in an interview with NoteWorthy Newsletter for a series they were running on successful Note Buyers, Note Brokers, and past award recipients. The focus was how to be successful in the note business and the information is as timely now as it was then.

Interview With NoteWorthy Newsletter

(Editor’s Note: This interview was conducted with Tracy Z. Rewey in May 2009 by Clint Hinman, acting Editor of the NoteWorthy Newsletter at that time.)

Clint: How long have you been working in the note business?

Tracy: I’ve been making my living in the note business since 1988. That’s over 20 years (but if anyone asks I started when I was 12).

What led you to choose this line of work?

The flexibility and creative problem solving make the note business both fun and challenging. It provides an opportunity to work for yourself while also helping meet the needs of the note seller.

Ultimately it was the ability to harness the power of compounding interest and the time value of money that hooked me for good. I was blown away the first time I learned to run a HP12C financial calculator and finally realized WHY investors bought notes.

Tell us about the first job you ever had.

I started out like most kids eager for cash – anything that paid. I took jobs babysitting and cleaning up behind parade horses. But my first “real” job was in 1983 when I started with a local attorney’s office.

Since it was a rural area the law office handled many transactions with owner financing providing my first introduction to the note business. I learned real estate closings, title searches, servicing, and documentation. Eventually I moved to the “big city” and my position with Metropolitan’s note buying division from 1988-1997. Metropolitan provided an unmatched intensive hands-on education in the paper business.

You were part of the production team when Metropolitan was at its strongest. You went on to start your own company, Diversified Investment Services. What is your current focus from a business perspective?

A desire for financial independence led to the creation of Diversified Investment Services, Inc. in 1997. We continue to cultivate our business from a three-prong approach by developing long-term income as a private investor, immediate income as a broker, and educational materials for referral sources.

A primary focus has been adapting to the changing economic environment by developing alternative note funding sources. During the past year we have dedicated significant time and energy to providing educational resources at www.noteinvestor.com.

What was the most significant event in your life?

It was the moment I decided to be the driver rather than a passenger in my own life. To borrow a line from the movies, “You can get busy living or get busy dying!”

Who has been the greatest influence on your professional life?

That is a tough question because there are many that have contributed to the tapestry of my professional life. At Metropolitan I was thankful to both Irv Marcus and Mike Kirk for sharing their investment knowledge and believing in my abilities. My husband, Fred Rewey, has been instrumental in pushing me to embrace new challenges outside my comfort zone, including leaving the security of a corporate job to start my own business. Over the years many other greats in the industry have generously provided their expertise and insights. The willingness to share really is one of the incredible things about the note business.

What do you feel is the single most important characteristic one needs to have to be successful in the note business?

Persistence, persistence, and more persistence. Be ready to adapt and change the approach but don’t give up!

What do you see as the biggest threat to the seller-financed industry? How can we mitigate that threat?

If you had asked that question two years ago my answer probably would have been a few unscrupulous professionals bringing unreasonable regulation. However, in light of today’s economic challenges it seems the seller finance industry became too dependent on the cheap money provided through conventional funding vehicles. With the collapse of the mortgage backed securities market we must come full circle and return to the days of reliance upon independent and private investment funds.

Seller financing is helping to fill the void left in the wake of the credit crunch. As the use of owner financing increases there is a demand for note buyers to help educate the sellers and real estate professionals on the safest and most profitable methods to carry back paper.

What kinds of mistakes do you see new note brokers make? What kind of advice would you give a new broker?

The note industry is similar to most businesses. First, you need to provide a service or product that is in demand. Second, you must effectively market to get your message out to the customer. Third, you must work hard every day to meet, satisfy, and exceed the needs of your customers.

Unfortunately many new to the note business fail to treat it like a long-term business. Frequently this is first evidenced by the failure to consistently implement a proven marketing plan. Growing discouraged many give up. It comes back to persistence, persistence, and more persistence!

You and your husband Fred produced the Personal Profit Series on Notes – how would someone new to the industry benefit from this product?

From marketing and negotiations to funding and investment strategies, we share the knowledge we have gained during our 35+ years of combined experience. The Personal Profit Series allows people to avoid expensive mistakes and profit from the note business. At over 475 pages, it is the most comprehensive system dedicated to the private mortgage business. The goal is to take someone from broker to investor at a price that doesn’t break the bank. (Editor’s Note: This is now an online course entitled Finding Cash Flow Notes!)

What has been your greatest personal achievement?

The creation of a stable and nurturing family environment has been one of my greatest challenges and achievements. My path has not always taken a conventional route but I’m fortunate to have shared it with Fred, a fellow adventurer. This year our daughter is graduating and it is with a sense of wonder and satisfaction that we send her out into the world to discover her own path.

Give an example of something you do every day that contributes to your success.

Making a list of what I want to accomplish each day helps prioritize my efforts. There are always more things to finish then sufficient time to complete. A list helps keep my focus on the best place to expend energy. Oftentimes I’ll start with the least desirable task first and everything else seems seem easy after that! Envision your goals, commit, develop a plan, write it all down, and then prioritize your actions to reach the goal.

Source: NoteWorthy Newsletter 2009

The State of the Note Business

Owner Financed Note Business Increases 56% since 2008!

Why the big jump? More importantly, where is the opportunity for note brokers and note buyers?

Call it a mini “State of the Note Industry” if you Read more

Calculating Cash Flow Notes and a Contest!

I have written before about how note buyers accelerate payments on cash flow notes. One such strategy was the Double Your Payment/Cut The Interest Rate in Half.

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! Read more

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