Unlimited Deals: Converting Notes into REOs and Cash Flow

 Pick Your Preferred Scenario…

Scenario One

Home buyers are competing with cash buyers for the decreased supply of homes on the market.

Investors are paying higher and higher prices for properties and putting their money at risk.

Investors are paying 87% of retail for short sales and still waiting months to see fruit for their efforts.

REOs are in short supply and cannot be purchased by investors at low enough price points to cover costs and make money. 

Realtors are closing shop because they can’t find enough properties to list to stay in business.

Trustee auctions are commanding almost full retail prices for houses while the bidder still cannot inspect the inside the home.

Savvy home sellers are expecting higher prices for their homes because, “The neighbor down the street got X for their house and it was in worse shape than mine….”

Scenario Two

The investor has more choices of what to buy at deep discounts than he has money.

The investor must constantly cultivate more private money sources to buy everything available.

There are so many assets to buy in your state that you no longer have to invest outside of your market.

You feel like you have discovered a gold mine of supply and you want to keep it a secret.

You have to develop systems to streamline how you analyze all the assets you could buy because there is so much available.

Your phone rings multiple times each week with sellers asking you to look at what they have.

Your on-the-ground team is happy to be back to work and thriving.

You feel grateful because while other investors are struggling, you can offer to others how to be successful with what you know.

Which scenario would you prefer for your business? Which one is true for you right now? If your reality is Scenario One right now, I want to show you how you can transition to Scenario Two so your business can thrive again.

Where We Are Now

Welcome to the world of non-performing assets. Few saw it coming. Most are surprised it is here. Few are taking action fast enough before it will be gone. Those who saw it coming have been quietly capitalizing on it and making millions while everyone else tries to squeeze the last dollar out of dying strategies of the past.

While inventories of available home to buy are approaching historically low levels nationwide, buyers of mortgage notes know they can convert many of the notes they buy into property that can be sold or rented out.

Buying notes has become the number one strategy today to acquire property at investor prices. While an investor must always be open to modifying the loan on the property, 60% of the time the note is converted into a property.

Here is how it works:

1)      You buy a non-performing first mortgage from a bank or hedge fund at less than 50% of the market value of the home.

2)      You have your servicing company contact the borrower to see if they want to sell the home, give you the deed instead of having a foreclosure on their credit, or stay in the home if they qualify for a loan modification. Remember, in all these cases, you have the final say because YOU ARE THE BANK!

Profitable Outcomes

Industry averages show that 60% of the time you will get the home by getting the deed. And 40% of the time you will agree to a modification of the loan. So, you either get a house you can rent out or sell, or a stream of loan payments coming to you each month. In the latter, after 4 months you can resell that now performing loan to Fannie Mae for up to 115% of the value of the property or a host of other buyers who love the income they produce. (Look for our previous article on the Hardest Hit Fund and Fannie Mae’s loan purchase program).

Buying notes has become the best property acquisition strategy today. Sure, you have to be open to modifying the loan if the borrower qualifies. But even that is a great outcome. Wouldn’t you rather have a portfolio of performing loans on properties filled by home owners than rentals occupied by tenants?

Back to our theme…

Here are ten advantages to acquiring properties through buying the note:

1.       You can buy at investor prices and keep your risks low

2.       You can convert the notes into properties and then sell them to property investors and retail home buyers at top of the market prices

3.       You can fill your acquisition pipeline with present and future deal flow

4.       You can keep your team busy and loyal to you

5.       You can keep your private lenders happy they work with you

6.       You can acquire more assets and hold them until the market peaks and then sell if you desire

7.       You can balance your portfolio with property and notes you own

8.       You can use performing notes as collateral for more property you want to buy

9.       You can buy notes, convert them to property, and then get monthly cash flow by offering seller financing to investors who will share with you half the rent and half the profit when they sell because you financed their purchase (topic of a future article)

10.   You sleep better at night because you have taken the time to learn how to acquire property through buying the note and you are immune to speculative property buying that depends upon appreciation to cover the inflated acquisition price. By the way, you can discern this when someone says to you, “Don’t worry that you are paying full market price. We are buying at 2006 prices. The market will come back and you will make a killing. Yes, you have to hold long term. But you know the market will come back and cover you.”

Would it not be better to pay at a discount to TODAY’S prices?

Take a look at buying notes. You’ll be glad you did.

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Brian Netzel has been a real estate and note investor since 1982 when he bought his first rental property. He is now focusing on buying defaulted mortgage notes nationwide that can be converted into REOs or cash flow. He is the acquisition manager for Inspired Capital Partners and the founder of SmartMoneyVision.com and RealEstateNoteInvestor.com which train investors to apply smart strategies that work in today’s real estate market.