Real Deal #151 – Residual Income With Notes!

Welcome to Real Deals!  It’s always easier to learn from real life so here we share information from actual owner financed transactions.

Looking for residual income with notes? Does a future income stream of $1,000 per month for 10 years on just one deal sound too good to be true? Discover how the Buy Full Sell Short strategy works on this Real Deal!

We were approached with a well-seasoned note secured by five retail strip mall type commercial units. The units had been purchased by a religious organization to use as meeting facilities.  The particulars looked like this:

• Sale Price: $135,000
• Down Payment: $10,000
• Original Balance: $125,000
• Terms: 10% interest payable in 360 payments of $1,096.96 per month
• Remaining Balance: $121,248.52
• Remaining Term: 306 months

We negotiated to pay $92,804 for the full purchase of the remaining 306 monthly payments.  We took a full assignment and purchased the entire note payment stream from the seller.

We then negotiated to sell a partial of 186 monthly payments for a purchase price of $95,046.  We realized an immediate profit of $2,242 on the sell of the note AND retained the right to receive 120 monthly payments of $1,096.96 each commencing in 15 ½ years.

To recap:

• Payments bought: 306
• Payments sold: 186
• Payments retained: 120

Money was made at closing but even better, we retained the rights to a future residual income stream totaling over $130,000 ($1,096 x 120). All from harnessing the power of compounding interest using the Buy Full Sell Short strategy or the tail-end payments on the note.

While we utilized personal credit lines to fund the seller and subsequently sold the partial to another investor, a cash flow professional can also set-up a double closing with an investor enabling them to utilize the investor’s funds to pay the seller.

To accomplish this the purchase agreement between the seller and the broker would be for a full purchase while the purchase agreement between the broker and the investor would be for the partial purchase.  An assignment and note endorsement are executed from the seller to the broker and then from the broker to the investor to complete the chain of title.

4/122/12 Editor’s Update:  This note paid off early!  Get all the details here Buying and Selling Notes for Residual Income posted 4/11/12 to see what happens when partial note purchases pay off early!

Real deals are based on actual transactions completed within the past ten years. Market conditions change frequently resulting in pricing and underwriting changes by note investors.  Work with qualified professionals when creating new notes to obtain accurate and up-to-date pricing and investment parameters.