By America's Note Network
Senior Staff Member
Suppose you went
to a garage sale and found a dusty $20,000 bill tucked away in a manila folder.
You ask the lady how much she wants for it. At first she is surprised you would
even buy it at all, but she says, "I wouldn't mind unloading it for
$14,000. It's a nuisance to me anyway." After you get over your initial
surprise, you say, "Well, maybe I'm crazy, but I'll give you the
$14,000." You buy the bill, walk to your car, drive to the bank and
deposit the full $20,000. You just made a cool $6,000 with no work. All you did
was:
1. Recognize an opportunity, and
2. Act on it.
Now who, in their right mind, would sell a perfectly good $20,000
bill for $14,000? Nobody. But a very similar thing happens all the time in
discounted mortgages and trust deeds.
And the best news is that you can buy a discounted mortgage or
trust deed without any cash up front. If you have been waiting to save up
enough money to start investing in this lucrative field, you don't have to wait
any longer. You can start right away.
Where Do Notes Or Real Estate Paper Come From?
Different states use different security instruments: mortgages,
trust deeds, land contracts, etc., but for our purposes, let's call them all
"notes or cash flows."
It all starts out when someone, let's say a lady named Sue Seller,
puts her house up for sale. Sue has a $100,000 property with a low interest,
low payment assumable loan of $60,000. Like most sellers, she first asks for
all cash for her $40,000 equity. But soon she finds that she doesn't get any
all cash offers.
Financial knowledge is financial power!
She changes her mind and says, "Owner will carry
financing." This improves her luck and she meets Bill Buyer who makes an
offer to pay the $100,000 price, take over the payments on the $60,000
assumable loan and put $20,000 cash down. Bill still owes Sue an additional
$20,000 for her $40,000 equity and he agrees to pay it over a period of time,
with interest.
This is where the "$20,000 bill" comes in.
Bill gives Sue a $20,000 note secured by her property with terms
as follows: 12 percent interest, interest-only payments of $200 per month, and
the full $20,000 due and payable in 36 months. If Bill had known more, he
probably would have gotten better terms (knowledge is power and financial
knowledge is financial power).
This note helped Sue get a jump on the competition and sell her
house easier and faster. It helped Bill buy the house easier, without using all
cash and without going to the bank for a loan. They both came out ahead from
their individual points of view, a Win/Win transaction.
Then what does Sue do? She takes off with $20,000 cash down
payment and her new $20,000 note and goes on the vacation of her lifetime.
Traveling all around for several months, she finally returns home with some
fond memories, some souvenirs, and guess how much cash? Zero!
Sue needs to get started again and decides to open her own
business. She needs $14,000 to do so. But the bank turns her down for a loan.
She is about ready to cry, when our hero, Paper Pete, a discounted paper
investor shows up. Pete offers to buy Sue's $20,000 note for $14,000. Sue says,
"Thank you for saving my day!"
Pete has just bought a "20,000 bill" at a garage sale
for $14,000. In fact, he did better than that because his $20,000 bill has 12
percent interest, $200 per month interest income, and pays off the full $20,000
principal in 30 more months. In addition, this $20,000 note is secured by a
$40,000 equity in a nice property that Pete wouldn't mind owning himself if he
had a chance.
Most likely, Pete will get paid as agreed:
·
Interest Income of $200 per month for 30 months = $6,000
·
Principal payoff at the end of 30 months = $20,000
·
Total amount received: Pete collects a total of $26,000 on an
investment of only $14,000. He almost doubles his money in 30 months!
In the event Bill Buyer, the property owner or debtor doesn't pay
as agreed for any reason, Pete can get even luckier because he can foreclose
and might even make more money. Pete would probably be cashed out early, but
should he get the property back, he would own a $100,000 house with only the
$60,000 loan remaining. He would have received $40,000 in equity for only a
$14,000 investment. So you see, Pete wins either way.
Figuring Your Profits In Advance
Before buying Sue's $20,000 note at a discount, Paper Pete figured
his yield or annual rate of return on the money invested by using his
Hewlett-Packard Model 10 B II pocket financial calculator. This handy machine
has become the standard for real estate, banking and finance. In the event you
don't have one yet, you should get one and learn to use it right away.
All Pete has to do is use the 5 magic keys: N or number of
payments, I or interest rate/yield, PV or principal amount or price paid for
the note), PMT or payment amount and FV or balloon payment. He enters 30 for
the number of remaining payments, -$200 for the monthly payment, and -$20,000
for the final balloon principal payment. He tells the calculator that he is paying
$14,000 for the note. The calculator says his yield will be 2.42 percent per
month or a whopping 29.1 percent per year!
Pete has just made real estate profits with high safety and
positive cash flow and without tenants, property maintenance, or management
worries. He doesn't need a garage full of spare refrigerators, buckets of
Navajo White flat latex paint, drop cloths and harsh cleaning chemicals like a
property owner does. All Pete needs is a mailbox and a telephone. He goes to
his mailbox each month, collects his checks and takes them to the bank. And he
has no physical work.
Are you ready for positive cash flow and no physical work? If so,
discounted paper is for you, too.
There's money out there looking for paper!
You Don't Need Any Money To Get Started
In this example, Paper Pete used his own money, but the fact is
that there is so much money out there looking for paper that you don't need any
money of your own to get started. You could simply find the Sue Sellers of the
world and then list those notes on America's Note Network for a quick cash
sale. In the above example an investor would have been happy to pay $16000 for
Sue's note. You just made the $2000 difference. Congratulations!