What are the questions noteholders ask?

“I saw your ad. What do you mean you buy mortgages?” Your best strategy is to ignore the question and ask one of your own: “Are you receiving payments on a mortgage now?” Otherwise, you may find yourself explaining mortgage investments to someone who is simply curious. Don´t waste your time with people who don´t have notes for sale.

“What do you pay for mortgages?” Again, don´t waste your time. Make sure they understand that you are only interested in beginning a conversation if they have a mortgage to sell. Ask, “are you receiving payments on a mortgage now?” It´s amazing how many people think they can sell a mortgage they´re paying on! If they say yes, the answer to the question of what you pay is, “it depends,” and you then proceed to ask them the questions from the intake sheet.

“How much of a discount will I have to take?” “As little as possible. Each note is different.” Then ask your questions.

“How long does it take before I get my money?” “Once you furnish me with all the documents I need, the process will take a few weeks.” (It may not, but you now have the time if you need it).

“Why does it take so long?” “The title search and appraisal are what takes the longest, and we have no control over those. It may very well be shorter.”

“Are there any points or fees I´ll have to pay?” “No, there are no points, and we´ll pay all the closing costs.” (Of course, you pencil in those costs when you quote the note.)

“What documents do you need?” “Not many, really. I´ll go over that with you when we meet to complete our agreement to buy the note. Would 3 o´clock this afternoon be all right, or would 7 o´clock tonight be better?” (Note that you give them an “A” or “B” choice, not a “yes” or “no” one.) “What if I can´t find all the documents?”

“The original note is the most important one. The others are either recorded at the county courthouse or on file with the title company or lawyer who handled the property settlement.”

“Can I use my own lawyer?” “I would insist on it. I strongly encourage you to have your lawyer review everything in advance. Of course, I can´t pay your lawyer´s fee, that´s your responsibility.” A note seller who asks this question is afraid you´re going to take advantage of him. The best way to dispel this is to do what he doesn´t expect — insist he consult his lawyer before he acts. “Whosoever shall compel thee to go a mile, go with him two miles.” (Matthew 5:41) “

What makes a good cash flow note?

The value of a real estate note depends ultimately on the economic conditions that support the value of the property. An owner-occupied single family house in a good neighborhood located in an area with a diversified, long-term stable economy is the best collateral possible. It is further enhanced by a payor who has an excellent credit record and unblemished payment history. Less desirable collateral, in descending order: owner-occupied (owner lives in 1 unit) duplexes/triplexes; non-owner-occupied single family houses; non-owner-occupied duplexes/triplexes; other non-owner-occupied multi-family units; improved land; commercial (non-industrial) properties; resort properties; subdivided but unimproved lots; raw land (some investors would use a slightly different hierarchy). Due to the current regulatory environment in the U.S., industrial properties and properties with underground fuel tanks have many hidden liabilities. Notes secured by such properties should be avoided. Cooperatives, time-shares, mobile homes and personal property are not real estate and by themselves are not adequate security for notes. There are a few corporate investors for such notes, however. The higher the investment-to-value ratio, the riskier the note (ITV = amount paid for the note + senior lien balance/market value of property). If there is little or no appreciation in the property, the loan-to-value ratio is a barometer of the likelihood of default. Notes on property purchased for $1,000 down or less often default. The higher the downpayment, the better. An amortized note is more valuable than one with a balloon, since the payor may not be able to make the balloon payment. The single most powerful financial aspect determining the value of a note is the amount of the monthly payment. For example, all else equal, a 10 year note with a large monthly payment and no balloon is worth more than a 10 year note with a smaller monthly payment and a balloon. A note in the first lien position is more valuable than one in the second lien position. Third lien or lower notes are worth very little. A second lien note with a huge balance first lien should be avoided. In case of foreclosure, the owner of the second lien would have to make the payments on the first. A seasoned note (one with a payment history of several years or more) is better than a green note (little or no payment history). The payor´s credit history or credit score is important to help determine the character of the payor and likelihood of default, but it is not infallible. Everyone, even those with the best credit, can lose their incomes, have medical emergencies or suffer other unforeseen catastrophies. The best use of a credit report is to identify a potential bankruptcy candidate. A second note behind an assumable first is always to be preferred over one behind a non-assumable first. Again: The value of a note depends ultimately on the economic conditions that support the value of the property. These are just some of the factors to weigh when considering a note. For an in-depth treatment of this subject, see Lorelei´s Legal Lessons, by Lorelei Stevens

How do I find notes?

Unlike other FAQ´s, this one can´t be answered in a few paragraphs. See Finding Notes from the menu above.

Where do I get the contracts & forms?

At last, a simple question! Go to The Dollar Store tab (or www.cashflows.org).

What’s the truth about the infomercials?

A few years ago the suede shoes and pinky ring crowd showed up selling cash flow “seminars” and “boot camps” and “coaching”on TV infomercials, in slick magazines and mass mailings, promising people that notes are the sure path to riches. They tell people: “The note business is easy.” “There´s almost no competition.” (The biggest seminar company actually put this in big letters across the screen in their infomercial! In case you didn´t know, that is an outright lie.) Other claims frequently made: “Many of our graduates make over $100,000 a year.” “You can spend all day on the golf course when you´re a note broker, just take your cell phone, make a couple of calls, and boom! You´ve made $10,000!” They charge anywhere from $5,000 to $10,000 and more for a few days of “training,” (which tells you why they think notes are the sure path to riches – their own!). To sweeten the pot, you sometimes receive the bogus title of “certified cash flow broker” or “consultant” or become their “apprentice” or get exclusive access to their lists of notes (all phony, by the way — see the FAQ above) or something similarly bogus when you take their course. The fact is, there is no certification recognized by the note industry. The Federal Trade Commission is going after the infomercial pitchmen, and several of them have already paid big fines and gone to jail.

What about all those investors on the Internet?

Again, 99% of them aren´t investors at all — they are brokers selling to the very few true full-time end investors. They just want other brokers to do all the work and take a piece of what should be the other brokers’ commissions.

What about private investors?

There are hundreds of private investors buying notes, but selling notes to private investors can be very risky. Until you become VERY experienced and understand the potential pitfalls we recommend that you deal only with reputable national investment firms. An up-to-date listing of the major firms and what they buy will be sent to you when you become a PAPER SOURCE JOURNAL subscriber, plus you get access to the Internet Registry. See the Journal tab in the left margin for information.’

Are those Internet cash flow note listing sites any good?

No reputable investor will touch a note listed on them. You are wasting your time and theirs if you ask them to quote a note you found on an Internet listing site.

Think about it: Mom and Pop Noteholder don’t even know their note can be sold, much less are they going to search the Internet for a listing site and post it there. These sites are marketing gimmicks used to sell “boot camps,” “coaching” and other gimmicks. They are dangled in front of prospects to seduce them into parting with thousands of dollars for “training” to become a cash flow (note) broker or “consultant.” The truth about the Internet note listing networks is that they are full of notes, alright — posted by note/cash flow brokers! 99% of the time they have no control over the note nor even any contact with the note holder. They got the note info from other cash flow brokers, who got them from other brokers, etc., etc. This is called the “daisy chain” and it’s the bane of the note industry. Don’t fall for it!

How do you convince note owners to take a discount?