Would you like to meet a note buyer that has been investing in private mortgages since 1981?
Well I’m honored to introduce W. J. Mencarow, founder of the Paper Source, Inc. and the feature of this month’s Note Buyer Interview.
Bill and Alison Mencarow have been publishing The Paper Source Journal since 1987. It is both the first and longest standing newsletter in the note business.
Bill has also authored several guidebooks including “How to Get Started in Notes Without Using Your Own Funds” and been interviewed by NBC, The Wall Street Journal, and numerous media outlets.
I first met Bill at one of the note industry national conventions (something else he was the first to host)! Over the years I had the chance to explore Washington DC, Cancun, and even Alaska thanks to his events. I must also give credit to Bill for meeting Bill Clinton and the Pope (or at least a couple of guys that looked surprisingly similar…)!
Bill started in the note business during the 80’s when seller financing was at an all-time high due to sky rocketing interest rates and lack of access to bank loans. He’s now witnessing the next wave of private mortgages as fall-out from the sub-prime lending meltdown. You are sure to find his interview honest, thoughtful, and insightful.
Note Investor: What is the current focus of your company The Paper Source, Inc.?
Bill Mencarow: Training, networking and continuing education for note/cash flow brokers and investors.
How did you get your start in the note business?
I give all the credit to our tenants. In the 1980’s my wife Alison and I were buying rental houses and going to seminars taught by Jimmy Napier, John Schaub, Jack Miller, Pete Fortunato and Mike Meeker. We were trying to learn more about investing in houses and how to deal with tenants. We also learned about buying notes, and Mike also taught how to broker them.
We soon realized that when something breaks in a house, the tenant never calls the mortgage holder! We decided to concentrate on buying mortgages and brokering the ones we didn’t want.
What unique benefits does your company provide?
We have provide a no-hype, no-cost online seminar that people can use to decide if note brokerage and/or investment is for them. If so, we offer low-cost training and networking programs and put note brokers and investors together to do their own deals.
What type of notes do you look at buying for your own portfolio?
Currently, blue-ribbon firsts secured by property in our area. We also like Texas tax lien certificates.
What do you consider the best methods for finding cash flow notes?
1) Paying off notes on which you are the debtor. Try to negotiate a discount. Even if you can’t, you should do it anyway. Paying off a note is buying that income stream, because each month you’ll have that payment in your pocket instead of giving it to the note holder, which is the same as if you had bought a note that paid you that amount each month. Better, in fact, because you never have to worry about a missed payment!
2) Creating your own notes on property you buy wholesale and sell retail (see “Deals on Wheels” by Lonnie Scruggs; he uses mobile homes in his examples, but the concept will work with almost anything).
What advice would you give to new professionals just starting out in the industry?
1. Never ask an investor for a quote unless you are in direct contact with the note holder;
2. Never believe a website that claims to be an investment company unless you know independently that they are for real (95%+ are really brokers)
3. Never buy anything from an infomercial.
4. Get to know who the genuine institutional investors are — there are very few;
5. Never use private investors unless you have done at least 100 deals with institutional investors and have learned all the pitfalls;
6. Never look for notes on the Internet;
7. You won’t make any money as a note “finder”;
8. As a note broker, make it your goal to know at least as much about the note business as your investor;
9. Gather as much information as possible about the note, property and payor before you contact an investor;
10. Develop trust with the note holder by being a person who inspires trust.
11. Verify everything you can about the note, property and payor, including what the note holder tells you, before telling your investor;
12. Tell the investor everything you know about the deal, the good and the bad — hold nothing back — as you learn more, tell the investor;
13. The bigger the deal the less likely it is to close — make it big on little deals (John Schaub’s golden rule);
14. Make it your goal that for every X number of notes you broker that you will keep one for yourself (Mike Meeker’s golden rule);
15. Sell investors partials and keep the back ends for yourself — and keep track of who owns the front ends;
16. Devote at least 80% of your time and resources to marketing for notes.
17. Nobody knows as much as you think they do.
18. Keep learning — what worked last year may not work today.
19. The reason most people fail in the note business is because they give up too soon. Perseverance is vital for success.
20. This is NOT a money business. It is a people business.
What is the most common business mistake you see people make?
Giving up because they thought this would be easy. I tell people not to expect to make any significant money in your first year, so keep your day job.
Can you share one of the high points in your note buying career?
When my wife Alison left her Washington, DC association job to work full-time in our business.
What is one lesson you had to “learn the hard way”?
That good judgment comes from experience — and experience comes from bad judgment.
Given the current economy, have you made any changes in the way you look at private mortgage note deals?
There’s a hard rain a-comin’. Depression or inflation are both bad for a note portfolio. In a depression people can’t pay their debts, and during inflation dollars buy less and less. People think we are in deflationary times, but that is largely only true of the real estate market, and that’s because it was artificially inflated by government intervention (CRA, bailouts of Fannie and Freddie, etc.) and the subprime debacle. The latest official inflation rate (Aug., 2011) is 3.77%, but the government doesn’t count the cost of food and energy! Taking those into account, the current inflation rate is 11.1% (http://usawatchdog.com/true-inflation-rate-2011/).
I believe inflation, not depression, is our future. The chances of a depression are about as likely as me being the next Miss America.
Inflation is built into our monetary system. Due to out of control government spending, borrowing and printing of money, massive inflation is inevitable. Your dollar-denominated note payments will devalue at a faster and faster pace, so it is critical to have notes that compensate you for that inevitability, preferably with gold clauses or at least ARMS. I won’t buy a note without one of those.
I love notes, but I don’t have all my eggs in one basket. I also recommend that you invest a significant portion of your liquid assets, including retirement accounts, in gold and silver. I’ve been urging PAPER SOURCE JOURNAL subscribers to do this for years, back when gold was around $300 an ounce and silver was $5.00 (today gold is over $1600 an ounce and silver is $30.00). They are still bargains. For IRAs, I like Central Fund of Canada. To learn more, see www.the-moneychanger.com
I also recommend investing in farm land, and that you move out of urban areas and become as self-sustaining as possible, including food, water, electricity and self-protection.
All of these measures are essentially insurance. You buy insurance hoping you’ll never need it, just as you ought to take these precautions to protect yourself and your family and hope you’ll never need it.
Where do you see the greatest opportunity right now in the note businesses?
It’s difficult to sell almost anything in most parts of the nation. This makes it ideal for note creation by people who own things that can be secured by marketable notes, i.e., real estate developers who are going broke because they can’t move inventory — show them how to create notes to sell property and you buy/broker the notes.
Also individuals who own lots, land, houses, condos, apartment buildings, mobile homes with land, mobile home parks, cemetery plots (preferably vacant, not owner-occupied)…the list is almost endless. But the key word is MARKETABLE. Don’t (ahem) spin your wheels on car paper, for example.
What is the best way to contact you for more information?
The contact form at www.PaperSourceOnline.com
Is there anything else you would like to share with our readers at NoteInvestor.com?
Harrison Ford summed it up for acting, and it applies to the note business as well: “I realized early on that success was tied to not giving up. Most people in this business gave up and went on to other things. If you simply didn’t give up, you would outlast the people who came in on the bus with you.”