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…

Looking at a Cash Flow Note From 30,000 Feet

Let’s say you want to buy a car. You are set on the color red. You won’t consider any other color. You also want a two-door car. Lastly, you are set on a convertible.

Doesn’t sound too hard to find does it?

Now, let’s say you are walking into a car dealership and see several dozen cars in front of you. To your left is a blue four-door hardtop of some sort.

Are you going to walk over and look at the interior? See what kind of stereo it has? Of course not. You knew from a distance that this car did not meet most, in this case “every,” one of your hot buttons. You knew this from a 30,000 foot level (or from at least 40 yards away).

You continue to scan the dealership and spot four cars in the back. All red, all two-door, all convertibles.

Now you can go over and check out what the interior looks like and what is under the hood.

That is kind of how I look at a real estate note.

I focus, first, on the items that are important to me; then I take a look under the hood.

I like seasoning and equity best. They are my foundation. If they don’t look good to me, it will be hard pressed to go much further into reviewing the deal.

Next I look at credit and the actual property.

I can hear a couple thousand people right now… “What, you don’t look at the property first?”

No, I do not.

I learned long ago not to get hung up on a property. Sure, it is a consideration, but it is not the first thing I look at. There are plenty of beautiful properties that get foreclosed on every day. There are also some “rougher” looking properties that people will never miss their payment. I am not buying the house (hopefully)…I am buying the note.

Now, with that said, sometimes items “offset” each other. I might have a poor down payment but great seasoning. Maybe not a lot of seasoning, but great credit.

But before I ever drill down that far, and start looking at offsets, I need to like it from 30,000 feet.

It also makes it easier when trying to find a note buyer. Most investors will let you know what they are looking for (at the 30,000 foot level). Every investor is different. If the note buyer wants a red convertible don’t bother trying to sell him a blue hard top. You are just wasting their time and yours!

*Disclaimer. Does it “really” take me 60 seconds to evaluate a note? I suppose you can ask Tracy. I can tell you that my attention span won’t last much longer than that if you haven’t interested me in the deal in that first minute.