Real Estate "Enhanced ROI" Techniques

Summary of advanced techniques used in real estate transactions to enhance return on investment, yield and velocity of capital resulting in greater wealth

1. Sell a property with an existing low interest mortgage utilizing a mortgage wrap. You’ll receive a higher price for the property because by offering seller financing you open up the bidding to a greater number of buyers. You create a note with an ultra high yield because you capture the interest rate differential between the stated interest rate on the wrap note and the lower interest rate on the underlying note.

2. Buy a property with seller financing at a low interest rate and long term and a substitution of collateral clause. Buy a note with a interest rate similar to the seller financed note at a large discount due to the relatively low interest rate and long term - and “substitute” this note for the seller financed note. You’ve just decreased your purchase price by the difference between the principal of the seller financed note and the “discounted” price you paid for the substitute note. Further, you now own a “free and clear” property you can borrow against should you desire and probably get all your invested cash out.

3. Purchase a business property such as an automotive repair shop. Purchase all heavy equipment needed for an automotive service business such as lifts, cranes, etc. Find an experienced operator wanting to operate in your location. You can charge a hefty premium because with the shop fully equipped the operator saves the cost of outfitting the shop and the time and effort required. You can obtain a 12 cap or better. on this type of situation.

4. Utilize options to tie up a vacant property while you attempt to increase its value by obtaining a tenant. When you find a tenant obtain a long term lease. Once the lease is executed, purchase the property under the terms of the option. The value of the property with a long term tenant in place may be 50% or more higher than the vacant value.

5. Purchase a low interest rate note at a significant discount to principal. “Work” the note by offering a smaller discount for payoff to the debtor, or by enticing an increase in monthly payments for a decrease in interest rate, which should if structured correctly increase you yield.

I have successfully used all these techniques and many others to enhance my returns. The opportunities to utilize enhancement techniques don’t occur often, but when they do they offer a great opportunity for increased wealth.

I never specifically look for deals where I can use enhancement techniques, I just recognize an opportunity to utilize one or more during the course of investing.

These are not techniques I originated. These were taught to me 40 or more years ago by Jimmy Napier and John Beck. Jimmy Napier was THE greatest source of knowledge on note investing. His book “Invest in Debt” is still the best on the mechanics of discounted note investments.

John Beck, unfortunately succumbed to temptation of “guruism” in his later years, hooked up with a real estate marketing company out of Las Vegas, and became front man for mentorship programs promising unsubstantiated returns. He was one of a number of parties that lost a large civil lawsuit resulting in a huge judgement. We who know John were more than shocked that he had “joined the dark side”. John left the courtroom after the judgement, walked away and has never been seen again.