Note Course Bonus: Where To Find Notes?
Published: Tue, 06/10/08
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Hello again ,
Where can you find notes? In this low interest environment, it's
not easy. One solution is to look at property transactions where
there is still seller financing occurring. An example is
land notes. In this Note Course Bonus lesson we'll learn about
the profit potential in these notes.
Another place to find notes www.eNoteWorld.com, the brand-new
online note auction. More info is below.
Cheers,
Bill
W. J. Mencarow
www.PaperSourceOnline.com
www.cashflows.org
BLOG: http://papersource.wordpress.com
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View over 40 different categories of financial instruments for
sale at discount.
The only site of its kind where investor and seller can work direct.
* Investors: Create your own yield by the discount you can negotiate.
* Sellers: Expose your asset to a worldwide market of investors.
www.eNoteWorld.com
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LAND NOTES
by Richard Koehler
Note brokers and investors who succeed do so by developing niche
markets. They develop an expertise in an area where there is no
competition. If you are only going to broker first position notes
on owner-occupied, single family residential homes, you will face
stiff competition in finding them and then in getting the best
price. A good niche market note broker will be working with note
sellers who are not shopping the note and in a market where there
is no competition.
One niche market that has not been fully exploited is land
notes. There are profits to be earned. Historically, however, it
has been difficult to find buyers for land notes.
The secret in buying and brokering land notes is to locate
safe ones that are profitable for you and attractive to an investor.
Safety
First, buy notes only on developed land, not dirt.
Developed land means the roads, telephone, water and electricity
are in, but there is no building.
Second, buy land notes with recourse back to the note seller.
This means the seller of the note is personally liable if the payor
defaults on his or her payments.
Third, you want to have a realistic appraisal on the land
value. "Realistic" because developers can distort the value by
selling a parcel to a colleague at an inflated price. New buyers
and some appraisers will use this phony sale price to give an
inflated appraisal.
Fourth, run a credit check on the payor. You should try
to broker land notes with good payors who have "A" or "B" credit
("A" credit is a score of 901-900; "B" credit score is 801-900).
Fifth, verify that the payor made a cash down payment of
at least 20% on the property. This verification can come from
the closing statement or from talking to the payor directly.
Sixth, call the payor to verify that he is happy with
his purchase and that he is not unrealistic about making profits
on his new property. Many land developers will "oversell" a
developed lot, leaving the buyer with dreams of riches in a few
years. When the buyer's dream bursts you do not want to be stuck
with a disgruntled payor.
Finally, keep your loan-to-value at or below 50% if you
want to broker the note to an investor. You do this by agreeing
to buy only part of the payment stream. For example, if you
and your investor are comfortable with a $30,000 value for a lot
in a residential area, you would multiply .50 times $30,000 to
get the maximum investment for your note buyer. In this case,
an investor would invest $15,000 in this note. If there was a
$22,500 note to be sold, you would offer to buy only part of the
payment stream.
Calculations
There is an existing note on the property that the developer
wants to sell. The note looks like this on your calculator:
N I PMT PV
120 10 297.34 22,500
Suppose the highest quote you get from an investor is $15,000.
Enter that figure in the Present Value (PV) of your calculator.
You also learn that your investor buy land notes of five
acres or less at a 13.74% yield. You put this figure in the
Interest (I) column. You know that the payment is $297.34 a month,
which goes into the Payment (PMT) column. Calculate the number
of payments you expect your investor to buy:
N I PMT PV
76 13.74 297.34 15,000
This means your investor could buy 76 payments of $287.34 for
$15,000 to get a 13.75 yield. You might offer $13,000 to the note
seller to allow yourself a $2,000 commission.
Convincing the Seller
Land developers and lot salesmen usually need cash.
In the above transaction you can show your note seller that he is
receiving $13,000 cash today, and when he gets the note back in
76 months it will still have a balance due of $10,914!
Your goal is to find a good supply of lots and a hungry
developer. Advertising that you buy land notes is one effective way
to locate them. Other brokers have been successful working
with real estate brokers, others contact developers by phone,
offering to finance some of their sales. Your marketing creativity
can be rewarded with three or four of these deals a month.
Richard Koehler is a veteran note investor.
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Says the author, Steve Case:
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These are the secrets that very few professionals know, and that
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For more information and to order "Tax-Free Real Estate Investing,"
go to http://www.papersourceonline.com/tfreinfo.htm The e-book is
only $19.00 and you can download it immediately.
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