Real Estate Investing Facts

Buyers, brokers and investors in mortgages, trust deeds, contracts for deed and other cash flows — called the cash flow business — find them to be high-yielding investments. Cash flow notes, also named cash flows, income streams, seller financing, debt instruments, receivables or paper, are thought by many to be limited to bank notes or discounted seller carryback mortgages.

But that only scratches the surface. Not only are people investing in and brokering notes like seller carryback mortgages, trust deeds and contracts for deed, but they are buying and brokering almost any other debt that is paid over time.  Almost any installment payment, not necessarily secured by real estate, can be a vendible cashflow.

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This includes annuities, leases, insurance benefits paid in installments (called structured settlements), retirement accounts, royalties, even lottery net income — and much more. Even such relatively unknown cashflows like tax lien certificates, contractor´s liens, medical receivables and commercial accounts receivable (factoring ) can provide you, or (if you broker them) investors, with multiple streams of income.

In other words, today the term cash-flows can mean any marketable I.O.U. that represents a promise to pay over time.

Notes provide cash flows. They are usually secured by real estate that can be foreclosed on or otherwise claimed by the note owner if the payments are not made. They are almost always discounted from their balance. For example, an investor may pay $22,680.00 for a note with a balance of $25,000.00 .

What is the reason for discounting?

Because of the time value of money: money to be paid sometime in the future is a promise — money in hand today is not.  Therefore money today is worth more than a promise of money tomorrow. Suppose you are offered your choice of a $10 bill and a $100 bill. You can have the $10 right now, but if you choose the $100 you´ll have to wait a month to get it. You probably will choose to wait for the $100. Suppose you can have the $10 now but have to wait a year for the $100? Or 5 years? Or 10 years? Sooner or later, you are going to say, “Give me the $10 right now.”

You´ve just discounted a $100 bill to $10!

In the same way, a note is discounted because the money is paid over time. 

How can someone profit from cash flow notes?

Innumerable ways. You can buy them for investment at yields above bank CDs and money market funds. Or, you can buy them at one price and sell them at another, higher amount. You can even contract to buy them, sell them for a profit to an investor, without spending any money of your own!

How does a note seller and a note buyer get together?

The kinds of notes that are the easiest to find and work with are privately created when someone sells a property or business and “holds” or “takes back” some or all of the financing. For example, someone may own a house on which they have paid off their bank mortgage. They sell their house for $200,000, receive a $40,000 down payment from the buyer and take back the $160,000 balance in the form of a “seller-held mortage.” In some parts of the land it´s called a “seller carryback mortgage” or “owner financing” or similar terminology.  It all means the same thing:   The buyer makes payments over time to the property seller. In other words, instead of the buyer going to a commercial lender, he or she asks the seller to take the place of the lender.

One day the seller decides he needs more cash than the monthly payments are giving him. Since you´ve advertised that you buy such notes, he contacts you for a quote on his mortgage. Maybe it has a $140,000.00 balance. You calculate the value and offer him, say, $131,266.00. He sells the note to you and now you collect the monthly payments. Your investment produces a nice double-digit yield on your money, and if the payor ever defaults, you will get the house and keep the payments that were made.

Of course, you could also broker that mortgage by selling it to an investor at a higher price than you paid for it (and you use the investor´s money to buy it in the first place!).  This is a great way to learn how to buy cash flow notes without using your own money.

There are many other ways to buy and broker cash flow notes. Real estate notes are only part of the story. Notes can be created with anything of value as the collateral.   However, real estate notes remain the backbone of the note brokerage business.

Who buys cash flows?

There are a handful of companies that buy notes across the country.  A few more buy them regionally.  There are many private investors that buy locally.  It is critical that you work only with TRUE INVESTORS — those that use their own funds or have sources of funds unavailable to others (such as their own lines of credit, their own private investors, etc.).

DON’T BE FOOLED:  99 PERCENT OF THE SO-CALLED “CASH FLOW NOTE INVESTORS” ON THE INTERNET ARE BROKERS. They are selling to the same true investors that you could be selling to, if you only knew who the investors are.

That’s where THE PAPER SOURCE comes in.  Since 1990 it has published THE PAPER SOURCE REGISTRY OF NOTE INVESTORS.  It is the most accurate list of TRUE investors available anywhere.  It tells you who they are, what types of notes they buy, and how to get directly in touch with the decision-makers.  They also have a free 7-part e-course on getting started in cash flow notes.

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Real estate investing stands for taking care of the investment put in to real estate. This consists of the process of purchase, ownership, managing, rental and/or sale of real-estate for gain or profit. The developments done on a real estate property is a natural part of a real estate investment tactic of real estate investing referred to real estate development. Real estate is actually an asset since it’s an economic source meaning it will be competent at getting owned or operated and handled to help build value, or profit.

Virtual Short Sale Investing.

Real-estate comes with limited potential to be changed to cash while compared with various other purchases. It’s moreover money intensive and is usually highly determined by cashflow regardless how productive it is. These issues have to be perfectly understood and maintained by the investor; if not the real estate becomes a costly or expensive investment. A bad cashflow can be the basic trigger of investment breakdown for real-estate. The instant the investor goes into this situation for some time, the investment will never be lasting and the investor could commonly end up being forced to sell the property at a loss or even endure bankruptcy.

Investment properties like scottsdale az homes for sale can be sourced from market listings thru a Multiple Advertising Service or Commercial Information Exchange; from real estate property realtors; middlemen such as bank property owned departments and public agencies; public auction such as foreclosure sales as well as estate sales, and through private sales. Real estate assets are usually really extravagant when compared to some other broadly available investment options like shares or bonds. Real estate investors don’t often settle the total sum of the value of a property or home in cash yet this is generally financed by a home mortgage by using the property as collateral. To be successful, real-estate investors need to take care of their available  funds to generate sufficient favourable income from the property to at the least counteract the carrying fees.

Usually, investment property like scottsdale az homes for sale generates cash flows to a trader with 4 basic means: by net operating income or the value of all of positive income flows through rent and some other resources of ordinary earnings generated by a property, without the cost of continuous fees, such as preservation, utilities, service fees, taxes, in addition to some other items; from tax shelter offsets obtained through depreciation, tax credits, and carry-over losses that decrease tax obligation billed towards revenue from some other resources; equity build-up which can be the increase in the investors equity proportion as the portion of debt service installments dedicated to primary accumulate over time which counts as a beneficial cashflow and capital appreciation which is the gain in cost of the asset over time, understood as a income any time the property is marketed. Capital appreciation could be quite unpredictable although once formed a component of a growth and advancement scheme in investment, could become a form of fantastic cash flows.

Purchasing of a real estate, like the scottsdale az homes for which the majority of the expected cash flows are estimated from capital appreciation, is actually a guaranteed investment in real estate.

Virtual Short Sale Investing.

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It’s every Investor’s worst nightmare. You finally jump into your first “as-is” rehab purchase and find that special deal. You were even able to work in a good cushion for rehab and holding costs. Then you hire a general contractor who turns out to be, at best, incompetent or, at worst, a thief. You spend the next six months living in hell and wonder whether you can survive the project and not end up in court.

Unfortunately, it’s very easy for anyone (qualified or unqualified) to go into business as a general contractor or specialty contractor. This ease of access to the market sets the table for unscrupulous business people to victimize novice investors looking for low-cost construction services.

It is every rehab contractor’s worst nightmare. You spend years in the field learning the art of remodeling – which work pays best in which market. Through years of hard work, you build a reputation for work that looks good for a low cost. Your projects come in at-budget and on-time. You are known for your personal integrity. You are then contacted by investors who pick your brain for good ideas and then shop those ideas to the lowest bidder.

Or what’s worse, the investor hires to perform work for which they haven’t adequate funding. Despite performing to the letter of the contract, the investor requires you to wait until he sells the property to pay – if then.

Unfortunately, it’s difficult for most general contractors to pre-qualify their potential clients and determine if they are reputable people who pay their bills and work to avoid litigation. Given the sheer number of contractors in the marketplace, it’s possible for unscrupulous investors to victimize numerous general contractors in this manner and never get taken to task for their actions.

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Hmmm…… Two sides of the same coin. How do you avoid these problems, whether you are an unsuspecting investor or a reputable contractor?

I suggest treating any relationship between investor and contractor as a relationship between professionals. The investor and the general contractor must pay attention to more than the price to be charged. Treating the pre-construction services of a project similar to the actual construction phase gives both the investor and the contractor an opportunity to work with one another before construction is begun. It provides an opportunity for both parties to find out:

1. Can they work with the individual on a personal and professional basis? Are the contractor’s or investor’s personal or professional habits such that that you could never work with them under any circumstances? Pay attention to how the other person respects your position. Are they on time? Do they want to do work at the level you want it done?

2. What is the quality of written and verbal communications from this person? Are the investor’s or contractor’s verbal communications confusing and contradictory? Are their written communications incomplete and sloppy?

3. Does the person do what they promise? Did the contractor get the bid to you when promised and with the information requested? Is this investor going to work with the general contractor or are they only interested in plagiarizing the contractor’s best ideas for use by another contractor?

From the investor’s perspective, they get to try out the contractor before the contractor ever sets foot inside the home to do work. If the investor doesn’t like what they see before construction begins, it’s a good bet they won’t like the contractor any better once the work has actually begun.

It’s all a matter of whom you are selling to when it comes to Home Staging or preparing your home to sell.

You have two initial options as a homeowner putting your home on the market.

1. Sell your home as a bargain to investors or bargain shoppers with limited income.

2. Sell your home for top dollar to your target market.

To prepare your home to sell to investors and bargain shoppers, all you need to do is look for a real estate agent who advertises bargain houses.

This agent will list your home under market value.

You also have the alternative option of advertising your home as a For Sale By Owner.

Continue reading>>> House Staging Strategies For Selling Your Home.

Hans Anderson

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Contacting pre-foreclosures home owners is sometimes easier said than done.  The owner is probably being contacted by attorneys, flooded with phone calls, mail and bill collectors.  The only methods of contacting the home owners would be by phone, mail, email or in person. 

 The best way to start is by mail or email.  Let them know in your letter or email that you are a private investor looking for property in their area.  Make sure the property owner understands that you may be able to help him with his financial situation. 

 Exhibit an understanding of the home owner’s situation.  Indicate in your correspondence that you may be able to stop the foreclosure.  Suggest that you might be able to save their credit rating, and even supply some cash to help pay their bills and help with moving expenses if necessary.

 Include your business card and suggest that the home owner give you a call at their earliest convenience.  If within a week or two you have not yet herd from them, send another letter worded more urgently.  If the auction date is getting closer you may want to send a few letters each month.

 If possible follow up your letters with phone calls. Making a phone call is obviously the fastest way to contact the home owner.  Remember this is a very stressful time in the home owner’s life, be polite, sympathetic and don’t be pushy.  Try not to discuss the details with the owner over the phone.  Just explain to them that in order for you to determine if you can help them, it would be best to meet at their home.  Explain to them that the meeting will be more productive if they have the loan, mortgage, and insurance documents available, as well as their foreclosure notices.

 Once you decide to make an offer on the property, you will need the loan number, ownership means, and debt (or lien) information.  Take this opportunity to determine the condition of the property, as well as the emotional stability of the property owner.  When you include the market value and the amount in default, you’ll have all the information necessary to formulate your offer.

 If you decide to just drop by and talk to the home owner in person with out at least having sent a letter in advance be prepared to be asked to leave.  People in general don’t like talking to someone who just shows up at their door about their personal affairs.

Hans Anderson

Foreclosure Investing

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