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Virtual Coffee Q&A – Amortizing vs Interest Only Notes – Rebounding After 2008 Real Estate Losses (Oct 2016)

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Just a quick intro, once a month I host a mastermind call to discuss anything having to do with seller financing and notes, and to have a little fun while we sip our coffee together.

Whether you’re a newbie or seasoned investor, my mission is to help create financial solutions, just one Mom n’ Pop to another.



Another satisfying morning talking about anything related to owner financing (property) and notes (paper). We were able to address a couple of our ‘hot seat‘ applicants who brought up issues related to the business that were relevant and helpful. A big thank you to James and Peter and others on the call who helped make the event a success.

Often people who have a strong preference for short-term, interest-only loan products (hard money loans) have a hard time figuring out why they would ever consider investing long-term in an owner-carry, amortizing loan where you get back a little bit of your principal each month.  It seems to diminish the return available… not all of your principal stays out there consistently at work in that particular deal, so on the surface, the cash-on-cash return doesn’t seem as attractive.

I was trying to explain that besides the increasing safety and security you get each month, having a few discounted notes in your portfolio exposes you to a wonderful upside you just can’t get with most private money loans. If a long-term amortizing loan pays off sooner than expected, the ‘unearned discount’ can really blow your mind. You won’t believe how high the returns can be even with super conservative note investments when they pay off early. You also don’t have to look for new deals constantly to keep your money working. If you aren’t ready to immediately deploy proceeds from a loan payoff, it will sit doing nothing for 1-3 months, effectively decreasing your annualized yield to 7-9%, even if you are lending at 10-12%.

Peter is one of many who really took a beating in the downturn of 2008. Real estate and stock market losses were absolutely brutal for people all across the country, and he is cautiously wondering if he should (and how he can) start dipping his toe back into the real estate investing world.

In my opinion, we are in bubble territory again and it won’t be long before we have another nasty economic reset. That doesn’t mean I’m hiding under a rock. Life must go on and… I am conservative in my approach and will only do a deal if it still makes sense even in the context of 25% depreciation or more. If I buy a property, I either buy it significantly below market, or secure excellent owner financing terms, or both. The property has to be able to carry itself, i.e. the cash flow has to cover all expenses and debt service. That way I don’t really care all that much what the market value of the property is at any given time.

Notes can be a great way to play the real estate game in times of uncertainty because you minimize your exposure to depreciation and loss of principal.

Robbin is a real estate broker who has successfully engaged in the NPN space as a way to acquire real estate at a discount. She bought several non-performing notes, foreclosed, became the owner, rehabbed and then rented them out. They are absolute cash cows, but she needs her seed capital back out of it. She is looking to owner finance to someone looking for a turn-key rental in Ohio.

She’s all in at $25,000. She’ll owner carry to another investor for $50,000 with a $25,000 cash down payment. The place rents for $750, so it is enough to retire the debt service (the $25,000 first note and mortgage to Robbin) in just 5 short years, leaving the lucky investor with a free and clear rental brining in $9,000 in gross rents each year. Perfect for a self-directed IRA!

Thanks, again, for participating in this wonderful world of owner financing and notes. Now go out there and do your part to create financial solutions, just one Mom n’ Pop to another 😉

Click the image below to hear the October 29, 2016 replay:

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