Using Private Investors To Fund Your Cash Flow Note Business, Pt. I

BY TOBIAS PRESTON

“You can shear a sheep every year but you can only skin it once.”
M. S. Garrison, Utah real estate investor

“He who has the gold makes the rules.”
Unknown

Part One of a Two Part Series-Overview of Private Investors.

I’m Tobias (Toby) Preston, President of McKinley Mortgage (MMC) www.mckinleymortgage.com and the Alaska Financial Company (AFC) www.akfinancialco.com. Private investors have purchased over $32,000,000 of our company’s private notes.  Another ~$28,000,000 have been sold to “institutional investors.”  I’ll tell you my recipe shortly.

First a bit about the cash flow note business and my dealings in it:

McKinley Mortgage was founded in 1989 in Fairbanks, Alaska. The Company relocated to Anchorage, AK in 1991 and to Girdwood, AK from 1993 to present. McKinley is now Alaska’s largest private mortgage buyer. I obtained a Correspondent Lender License in the State of Florida in 2005, and a California Real Estate Broker License in January 2007.  We and ourcompanies have funded over $60,000,000.00 in small private loans. I oversee the Branch Manager in charge of Operations, Finance and Marketing of McKinley Mortgage Co. LLC Girdwood, AK. To expand market shar, I am is directing growth moving beyond private clients to the secondary market of professional referral sources via another “money fund,, the Alaska Financial Company2, LLC. Finally, these efforts include a second field office in northern California where I reside part-time.

If you need a proven broker, call McKinley Mortgage at (800) 909-1977 or (530) 241-0977. If you want a portfolio lender, contact AFC at (800) 783-3253 or www.akfinancialco.com. Finally, if you desire contract servicing, please call (530) 339-1498 or www.hand1.net.

Next, let’s look at how to grow your business if you have already brokered private loans (that means seller financed land contracts, mortgages or trust deeds). What can Private Investors do for your note business?

· Give you a built-in demand for notes regardless of institutional demand (for many years McKinley has sold 100% of its brokered notes to private investors!)

· Build your network for additional financing if you do more than notes (i.e. real estate-we’ve tapped our private sources to purchase pre-foreclosures)

· Grow your cash flow note business

Let’s review key skills needed (if you are brand new, I do not suggest beginning with private investors. Period!):
· Experience
· Local knowledge
· Understanding of arbitrage
· Core skills
· 100% integrity
· Systems knowledge
· Process of Marketing, Operations and Finance
Since I expect you to already have note funding experience, that means you know how to find notes, quote them and get sellers to want a “lump sum of cash” through your business. Now, instead of giving that seller over to an institution (there aren’t too many left currently) or to your own IRA or portfolio, it’s time to learn how to fund this “good note” with a private investor. Here’s how we’ve done this tactic thousands of times!

Step One – Create a group of private investors who will fund the good notes you bring them. (you don’t have this? Stay tuned to Part Two of these series)

Step Two – Quote your notes based on what private investors typically pay (if you are new, use these figures for discount to yield). Additional parameters include only performing notes, 30%+ equity and 600 minimum FICO score:
· Land only 13%
· Improved land and/or MH 12%
· SFRs 11%

Step Three – Get a “pencil in” commitment from a private investor via a one page Profile

Step Four – Complete Due Diligence and open escrow

Step Five – Fund the deal in about 3 weeks

That’s it! The other key contact in addition to knowing your own abilities and a good investor is an escrow closer that can follow your instructions to the satisfaction of the note seller, private investor and so forth. For more information, contact either myself, my brother Charles or my son Caleb. Seven of us presently serve in the companies and three are family. The balance of the two has been proven as a business model.

Onward,
Tobias (Toby) J Preston, President, McKinley Mortgage CO.
www.mckinleymortgage.com
e-mail:  tobias@akfinancialco.com