Another Jimmy Napier High Yield Note Creation Technique

[Don Konipol]

I’ve used this one a few times, but not as often as I probably could have.  It works best nowadays with commercial property that has assumable mortgages.  It goes something like this.

You find a commercial property for sale in a good location that’s currently vacant (so that you’re not paying for current cash flow) and that has an assumable mortgage at a relatively low rate. So for example a property you buy for $500,000 with a $300,000 assumable mortgage note with an interest rate of 5%.  You buy  the property paying $200k down.  I find that selling owner user commercial property with 20% down and owner financing the balance is quite easy and usually results in at least a few quick offers.  You sell the property for the same $500K to an owner user with $100k down and carry back a wrap note of $400k at 10%.  If the note is a 20 year term and the underlying  note the same, you’ve got $100k invested with an annual return of about 22%.  Prepayment penalties can be used to insure against an early payoff.

The times I’ve used this technique to create high yielding note I enhanced the return by being able to sell the property above the price I paid.  Of course nothing goes exactly as planned; in one such deal the borrower was having trouble making payments and had an offer to sell which required me to carry back a second mortgage.  I eventually got paid on the second.

To. Utilize this technique the following is required

1. Knowledge of the real estate market as to property type and location 

2. Understanding of time value of money

3. Understanding of mortgage notes

4. Ability to market the property

5. Capital for down payment 

6. Long term investment capital and “emergency” funds to endure when things don’t go as planned.

7. “Guts” to do this kind of deal

8. Time to engage in an active real estate technique

Ok, I’ve stated this many times before and will state it again.  You do not start by engaging into a mentoring program.  You start by educating yourself as to real estate principles, real estate finance, and real estate law.  Only AFTER you become well versed in these three areas do you consider education in specific techniques.  Because people skip this and jump right to techniques, we have a huge FAILURE rate of people wanting to be real estate “operators”.  Notice I said “operators”, not investors.  Because most of the techniques that “create” value require a LOT more than just investing.  

I’m eager to hear about techniques others used to “create” a high yield note or investment