Are we buying notes on cruise boats now?
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.