CAPITAL AND TIME
The poor stay poor because they don’t understand that labor has rarely been the key to wealth. Neither has luck. The secret of acquiring and preserving financial security lies in the effective use of capital and time in creating assets.
BUY FROM A SELLER MORE MOTIVATED THAN YOU
Otherwise, you’ll pay too much. If both parties expect to walk away with the same financial gain, it’s doubtful that a good transaction will ever take place.
I D E A L BENEFITS FROM INVESTING IN A SINGLE FAMILY HOUSE P 2
Equity build up
DON’T LOOK FOR PROPERTIES. PROSPECT FOR SELLERS.
Finding IDEAL properties is a numbers game. Patience is your most valuable personal attribute. Use a children’s baseball game as a metaphor: until you like the “pitch” served, you wait to “swing. “
THE KEY TO FORTUNE BUILDING LIES IN AVOIDING COMPETITION.
Instead of newspapers, signs and brokers, find other ways to prospect, such as cold canvassing. Find “Don’t Wanters,” a term coined by Warren Harding to denote a seller who no longer wants his property. When you find them, you’ll make your buy.
TERMS MAKE MORE MONEY THAN PRICE ON LONG TERM INVESTMENTS.
You can always offset price with terms and vice versa. You can bargain for rates, possession, personal property and payment periods. Until appraisers factor in financing, I’m going to remain skeptical about their conclusions.
BE THE BANKER OR MAKE THE SELLER BE YOUR BANKER.
Learn how he thinks and how he makes money by letting time do all the work, compounding what’s owed…you can see why it’s so easy to buy bank foreclosures with low down payments and financing provided by the bank.
Every hour spent learning tax rules can pay off for the rest of your life in terms of higher net income.
THE ALL STAR CHAMPION OF THE INFLATION GAME IS THE LOWLY OPTION.
It provides maximum safety with maximum leverage and potential profit.
NEVER USE INSTITUTIONAL FINANCE WHEN BUYING HOUSES.
Use seller financing and no personal loan liability. Sellers need cash and will discount their debt for a quick payoff. No institutional lender will offer the same discount for early payoff as a seller because they rarely are motivated by quick cash.
PURCHASE FOR RESALE
Anytime that anything is being purchased for resale, (house or mortgage) all negotiating should be toward lowering the price, even at the cost of higher interest rates and payments. On resale, a new buyer who intends to refinance will wipe out the unattractive loan and you’ll enjoy the additional profit spread that the bad terms provided you.
HOW TO GET OUT FAST
Sell out and carry a mortgage, then use it as payment for better property.
Sell the note at a discount to an investor and use the cash to buy at a bigger discount in the distress market from another who’s more distressed than you.
Trade your fixed up rental/user property to a land owner who wants a tax shelter and income—or a home; then trade the land again for income property.
Use a “Spoon Full of Sugar” technique by packaging the good with the bad to attract the market.
PACKAGE THE BENEFITS
While sellers sell features, buyers buy perceived benefits. You’ve got to package the benefits so they’ll not only perceive them, but also buy them. The benefits are:
Pride of ownership
Low down/Zero down
Low monthly payments
High allowance for Trade In
Seller financing/no qualifying
Choice of décor
Wrap around financing
Extras—time share, used car, decorating allowance
CLOSING THE SALE AND KEEPING IT CLOSED
All sales techniques are subject to negotiation and can be mixed, matched and substituted as needed to get an agreement. Many people can structure elaborate transactions, but few can get a contract written, signed and closed.
Steps to close the deal:
First, you must know the product and be able to value it correctly. Learn to qualify buyers, sellers and tenants. Don’t waste time on those who have neither the power nor the will to make binding decisions, are not motivated or don’t have the capacity to act.
Then document the results of your price and terms on the correct documents. Assemble everything you’ll need to make a deal. Place these in a notebook. Take time to learn which documents to use in every situation.
Next, make sure they are understood and signed by all the right parties in the right places. Learn to explain them.
Finally, create a legally defensible agreement which will come to fruition when and where it is desired. Learn sales closing techniques and be able to apply them: Examples: WHY letter, Conditional Close, Trial Close (How do you spell your name?), Third Party Disapprovals (if you wait for an approval, it hardly ever comes.) Witnesses.
CREATING INCOME AND PROFITS WITH MORTGAGE NOTES
A note is a legally enforceable promise made by one party to another to pay a certain sum over a certain period of time with interest at a stated rate.
Mortgages (like legal glue) attach a particular note to specific collateral to secure the promise. The principle here is that the borrower would rather make payments than lose the pledged property. So to motivate the borrower, the lender lends only a fraction of the value of the collateral.
While there are many risks in buying notes, this does not mean that there are no safe profits to be made in discounted mortgage markets. Buying paper requires expertise and caution at least as high as investing in the underlying real estate which serves as its collateral.
Mortgage investors who chase yields, play a game in which they buy property, assuming an existing loan. Then they flip it, and carry back financing on a wrap around loan. In effect, they are trading on their own financial strength taking over the payments, but sacrifice a lot of the quality.
THE FAIL SAFE WAY TO BUY AND SELL NOTES
Focus on discounting notes from face value. Forget about yield calculations. E.g. buy a 10k note with 12 years of payments remaining at 7% for 8k. Resell at full face value a month later, getting 2k return on 8k in 30 days which is 25% per month.
Steps to buy and sell notes:
Find out when sales are closing or contracts are pending. (Cultivate brokers, escrow agents, attorneys and MLS sources.)
Focus only on small, privately held mortgages, which will be paid off at sale closing.
Write a letter to the mortgage holder in which you offer to buy the loan at a modest discount for cash /30 days. (Get address at court house.)
Send a signed Assignment of Mortgage to the same company that is closing the sale.
Pay and record at courthouse when it arrives.
When the sale closes, you are paid off in full.
Work several county court houses and get a continual stream of discounted paper profits.
Do not tell too many people, or you will attract more competition.
Identify small loan companies that specialize in consolidation and home improvement loans.
Get to know the local manager.
Offer to buy a package of his loans at 20 cents on the dollar that have been in default at least six months, subject to your investigating the collateral. If they have not foreclosed after 6 months, they’ve already written them off, so 20% yield is not bad.
THE TURTLE ALWAYS WINS THE RACE
Use common sense and your ability to think things through. For every winner in a game of chance, there are lots of losers you’ll never hear about. Take the low, slow road to riches by placing one well thought out, profitable deal ahead of the last one and continue to build wealth, Until Appraisers factor in financing, I’m going to remain skeptical about their conclusions. Do things you understand.