Interested in seller financing, real estate contracts, or buying notes in New Mexico?
Then you will want to know Ric Thom of Security Escrow, the feature of this month’s Note Buyer Interview. Ric has been servicing and buying real estate contracts in New Mexico for over 25 years.
He’s also a true owner financing expert that has been actively involved in trying to “make sense” of the HUD Safe Act and Dodd Frank Act.
Where do you focus your efforts as a Note Buyer?
The current focus of my note-buying company, Ric Thom Enterprises, is looking for additional investors. The hard part about this business used to be finding quality real estate contracts. Finding investors was the easy part, but with all the negative publicity about foreclosures and declining property values it has become a little harder to find investors. However, default rates on owner financed transactions (installment sales) are only running about 5% in New Mexico compared to 9 or 10% for conventional financing. The reason is buyers can simply pick up the phone and call their sellers to modify the contract.
How did you get started in the note business?
I started in the business of buying and selling real estate contracts in 1984 after becoming a real estate broker and taking a CCIM (Certified Commercial Investment Member) course. The CCIM Course dealt with financial calculators, time value of money, and discounting mortgages. The light bulb went on. I bought two small contracts for myself. Someone asked me what I was doing now and I told them about this great investment where you could get double digit returns secured by real property. They wanted in and I sold them one of my contracts netting a whooping $389! He told someone and they told someone and it just built from there.
I have purchased close to 2000 contracts during my career. Although I usually sold contracts to single private investors I have sold more than 100 to national note buying companies. I have only brokered about two dozen contracts. I have increased my profit margin since my first sale and have never lost money on a contract.
What unique benefits does your company provide?
One of the unique benefits my company provides is that I test drive the contract before I sell it. In other words after I negotiate a price with the note seller I do my due diligence and buy the contract with my own funds. I hold on to it for at least three months to make sure there was no fraud and the payments continue. Then, and only then, I sell it to an investor.
What type of notes or transactions will your company consider buying?
My company will consider buying only real estate contracts in New Mexico. I won’t purchase anything over $300,000, but I will try to broker it. Most contracts are a lot less than that. I’ll look at any property type, except restaurants, motels and churches. I don’t check credit. I am buying an asset. I do look at payment history. I prefer seasoned contracts of a year or more, but I will buy green contracts if they have at least 20% down. I try to stay under 80% investment to value.
What type of deals would just waste your time?
The type of deal that would be a waste of my time would be nonperforming contracts. People say, “hey why not just buy it at a deep discount, take the property back and resell it?”. I’m not in the property business; I’m in the cash flow business and so are my investors.
How do like finding notes and real estate contracts?
The best methods for finding deals are looking through public records, but with a twist. I would calculate what the present balance of a contract would be after payments had been made and actually make a discounted offer to the contract holder. This offer would be subject to a number of items that comprise my due diligence. Having a figure as to what they can actually get for their note is so much more effective than just saying, “Hey, I’ll pay cash for your note”.
Another method is to become an affiliate of several realtor boards and advertise that you will pay a referral fee to its members. Join a local real estate exchangers group. Realtors are a great resource.
Another method is to work with an escrow/servicing company of seller financed notes. Often, the owners of these companies don’t have the time, knowledge or desire to buy and sell notes. You can either offer them a flat fee to allow you to place a flyer with the payments that go out to the sellers or you can offer a percentage of your gross profit on any contracts/notes that are generated from you soliciting their sellers.
Or you can do what I finally did which was to start/buy an escrow company.
How do you handle commissions to note brokers or consultants?
Commissions to brokers or consultants are negotiable.
What advice would you give to new professionals just starting out in the note industry?
Advice I would give to new professionals just starting out in the industry is to keep your day job and get a line of credit. It took me more than three years before I could make a living buying and selling contracts. You need that time to build contacts, reputation, and learn from your mistakes. If it wasn’t for a line of credit, I would not have been able to make it in this business. There is nothing worse than spending three weeks putting together a package to send out to investors only for the seller to sell their contract to someone else for less money because that buyer could be “Johnny on the spot”. With a line of credit you can cherry pick the very best contracts to buy and broker the marginal ones. Your line of credit can come from a local bank, home equity or friends and family. If it is indeed a good contract the payments will more than pay the interest on the line while you are selling the contract.
What is the most common mistake you see people make in the note business?
The most common business mistake I see people make is trying to make something work that’s not going to work. When I first started I hated to walk away from any contract. The fact is some contracts/notes just can’t be sold either because of the terms, the property, or the seller. When I first started I wasted a lot of time trying to make everything work; so much so that my wife had a sign made for my office that said, “If it works, it works. If it doesn’t, it doesn’t”. From that day forward I was able to tell sellers in a very short period of time whether or not I was willing to buy their contract or not. Then I would go turn over another rock.
Have you made adjustments to the way you buy notes in the current economy?
The changes I have made given the current economy, is seeking deeper discounts and higher yields as a result of my investors requiring the same. I am also buying more partials, also known as fractionals, to minimize risk.
Where can someone contact you to obtain more information?
Email at firstname.lastname@example.org or visit online at SecurityEscowNews.com
Is there anything else you would like to share with our readers?
One of things that have pleasantly surprised me over the years is the number of people who genuinely thank me for helping them out of a bad financial situation by purchasing their contract/note.
If you would like to read more from Ric Thom of Security Escrow be sure to check out these articles: