A common reason that investors look towards foreclosures is because foreclosed properties can be purchased for below market prices. One of the ways you can get negotiations off the ground is to ask the seller to "hold paper." Holding paper simply means that the seller carries back financing, or partially becomes "the bank" in a deal. For example, you want to purchase a property for $200k, and although you have no problem getting conventional financing for the first $150k, you can't get the remaining $50k. Instead of putting that amount down, you ask the seller to hold paper for you, and then you make payments to the seller on a $50k loan. Essentially, the seller lends you the money from his or her equity to help you purchase the property.

As you can imagine, many sellers aren't too keen on the idea of holding paper, especially in Massachusetts. Holding paper is common in the South, but because of cultural differences, you won't find that many sellers open to the idea up here in New England. How do you help a seller become more open to the idea of holding paper? Introduce a note buyer into the equation. "A note buyer can enter into a deal by purchasing the note from the seller for cash," says George Riley of Genesis Funding Resources. "This creates a win-win situation by providing the seller with cash instead of a note and providing the buyer with seller financing."

Consider this example:

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1. Bob the Buyer wants to purchase a property from Sally the Seller. 2. Bob is interested in closing a deal with little or nothing down, and so asks Sally to assist him in making this deal work by holding paper. Sally isn't sure about the idea, and declines. 3. Bob then introduces Sally to George the Note Buyer. 4. Bob explains that if Sally is willing to help him finance the property with her equity, he'll line her up with George who will purchase the note. Sally reviews what's in it for her: She'll be able to sell the property at the price she's asking to a buyer who's ready to buy, and she'll be able to convert her note to cash easily. Bob reviews what's in it for him: He'll be able to purchase the property for little or nothing down, make monthly payments on the note, instead of a lump sum at closing, and be able to get into a property he otherwise wouldn't be able to purchase. What's in it for George? George gets to purchase a note from Sally, and continue to receive the payments from Bob over the long term, therefore creating an additional stream of income. 5. Everybody wins.

What makes for a good note?

What is a good note? A note with at least six    month of aging All payments made on time Excellent payer credit history Loan-to-value-ratio Saleable property

According to George Riley, a good note has at least six months' of aging. Aging is the length of time from the first payment to the day the note is sold. The older it is, the more history of on-time payments there is, and the better it looks on paper. This brings us to the second qualification of a good note: on-time payments. Unless you want to see your property in foreclosure, making your payments on time every month greatly increases the value of your note. What about the buyer's credit score? A good credit score will help increase the salability of the note, but is not a necessary factor. Other factors include the loan-to-value-ratio, the value of the property, and most of all the salability of the property.

How you can seal the deal with the help of a note buyer:

It's always good to have your ducks in a row ahead of time. Before you approach a seller about working with a note buyer, you should have a working relationship with your note buyer and a knowledge of how note buying works. To further assist you in understanding more about notes and their benefits to the seller, we've provided a 3-page guide titled: "The Real Estate Investor's Guide to Private Mortgage Notes".

George Riley of Genesis Funding Resources can be reached via phone at 508-904-7086, by email at george@genesisfr.com or via his website online at: www.genesisfr.com.

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