ForeclosuresMass - ForeclosuresMass Monthly - Creative Financing - In a Soft Market, Put Real Estate Notes To Work (September 2006)

We've heard it a hundred times during the past year from the media and the experts... the bubble has burst, the real estate market is on the decline, it's a buyer's market, etc. I'm not sure if there is a burst real estate bubble, but I am sure that prices have gone flat and they may be slightly declining, and that buyers are taking their time in making buying decisions.

In fact, many of the sellers who contact me confide that they have had their house listed for sale for a long time, and nobody has even looked at it. My response is always the same: "Your price is too high; if you want to sell quickly you'll need to lower it." This is reality. If sellers don't want to lower their price, they'll just have to wait until the market catches up to the price they want.

There is a 6 to 7 year price cycle, and presently we are on the downhill side, meaning we have not hit bottom yet. We'll hit bottom, at which point prices will come back and peak higher than ever, but that's perhaps 4 or 5 years into the future. Sellers can wait, or they can lower their price.

So, how does all this help you as an investor? It's common knowledge that foreclosures are on the rise, mostly due to over-mortgaged houses versus declining market values. This presents a great investment opportunity, and using notes can help seal the deal on many real estate transactions.

* Next 37 17 investors only!

A real estate note is an agreement that one party owes the other party money or other form of consideration. It should not be confused with a mortgage - an instrument which ties the note (money owed) to the property.

With notes, always remember the concept of Terms Vs. Price. If you get good terms from your seller (no payments for the first 6 months; interest only for some extended period of time; no payments until you cash out; etc.), you better give a great price to the seller in return. What's a great price? ... whatever he'll accept and you are comfortable with!

The greatest way to buy a house using notes is the pure "Nothing Down" deal; an arrangement where the seller takes a note for 100% of the agreed upon price. If your seller is willing to wait for their money, understands how notes work and, most importantly, likes and trusts you, you can offer them a higher price than they would get from a cash buyer. You get the house, and with no money down! Sure, you'll have to begin making payments at some point, but hopefully by then you'll already have a list of potential tenants, other investors or buyers who will pay you more each month than you are paying the seller.

In practice, and while it is not impossible to transact a 100% financing deal of this kind, you'll probably end up using notes for some portion of the deal, in the form of a second mortgage. (Seller held second mortgages are very common, and are probably a significant factor in precipitating the recent increase in foreclosures. These seconds are what enabled people to qualify for loans that they would otherwise not have been able to get.) It's most likely therefore, that you will need some other source of cash and combine it with a note to get into an investing deal of this type.

Let's consider an example of how to make an even greater profit on a deal when using a real estate note. Assume you buy a house and the seller agrees that taking a note for a large portion of the price is in her best interest. You have negotiated terms that allow you to make low payments on the seller held note and go off in search of a buyer. When the buyer is ready to close, you contact the seller (to whom you owe payments) and tell her, "I've just come into a large chunk of cash. If I were to cash out your note in full, what sort of discount would you give me?" Even if she doesn't take your offer right away, a few months of low payments might convince her to offer you that discount. Whatever it is, it's money in your pocket!

One final word about notes. I am frequently approached by persons who hold notes and are looking to sell them at a discount for cash. There is indeed a market for notes, however, most note buyers will not even consider buying a subordinate note (i.e. one which is not in the first position). As a practical matter therefore, anyone who holds a second or third position note should enter into the deal under the assumption that they will be making the monthly payments themselves.

George Riley is an experienced note buyer with Genesis Funding Resources. He can be reached at george@genesisfr.com or via his website at: www.genesisfr.com.

Did you like this article? You May Also Like:

	Feature Article: Letters to Homeowner Prospects: 6 Rules Will Get Them Read... and Answered! Ken Lizotte, CMC Of all forms of writing, letter-writing may be the toughest. After all, who reads letters anymore, let alone writes them? Most of us frantically clip thru our snail mail as quickly as possible, casting 90% of it unopened into the trash. Thus, any letter you send to a foreclosed homeowner must grab your recipient's attention at once, hold his or her interest and (best case scenario) motivate your reader to action...
	Legal Corner: The Foreclosure Process: What Potential Buyers Need To Know Howard D'Amico It pays to be informed, prepared and diligent if you plan to participate in a foreclosure auction. Having an understanding of the entire foreclosure process from start to finish will give you realistic expectations and maximize your chances of getting the property you want...
	Success Strategies: Seven Tips for Improving Your Property's Curbside Appeal Tony Bernstein, SLDA Landscape Associates You have about 30 seconds to impress potential buyers as they drive by your property for a "look-see." If they drive by and notice trash, weeds, dead grass and other problems, they'll keep right on driving. In his article, landscape architect Tony Bernstein gives you seven tips for improving the curbside appeal of your property - tips that will get buyers out of their cars and into your house.
	Creative Financing: In a Soft Market, Put Real Estate Notes To Work George Riley, Genesis Funding Resources A Real Estate note is an agreement in which one party owes the other party money or other form of consideration. In a slow market, sellers may be willing to finance your purchase - often with no money down - in exchange for a higher price. George Riley explains the ins and outs of this innovative concept.
	Closing the Deal: Watch Out for Sale Contingencies When Selling a Property David Camiel, Attorney With a drop in the sheer number of buyers, foreclosure investors who intend to sell properties must pay close attention to the details of any deal. Attorney David Camiel explains what to look for - and what to look out for - before signing an offer to purchase or a purchase and sales agreement. Don't miss this information-packed article!
	Feature Article: 5 Must Haves in Screening and Hiring a General Contractor Kris Sawyer, President and Founder, Redlands Construction Inc One of the most effective ways to flip a real estate investment is to purchase a fixer-upper, invest in strategic improvements, and sell or rent at a profit. Getting it done the right way however, is not that simple. If you're considering working with a general contractor, you won't want to miss Kris Sawyers simple wisdom on this important topic.
	Agent Success: The Essence of a Good Real Estate Agent John Ralen Much has changed in residential real estate sales over the last several years, but many core competencies and strategies remain the same. Many of the skills and attributes that make an individual successful as a realtor...
	Success Strategies: Capitalize on the Current Real Estate Market with a Reverse Exchange Gary Gorman, The 1031 Exchange Experts Did you know that you can purchase foreclosed properties now, while the market is still down, but not take Title to them until you're able to sell your current properties when the market goes up (and thus defer capital gains taxes)? It's true - and you can do this with a reverse 1031 exchange. Like the normal 1031 exchange, the reverse exchange has its own set of rules and guidelines, all of which Gary Gorman, the reverse 1031 exchange expert, explains in this article.
	Interview With The Expert: Managing "Bad" Credit Marty Eerhart, Senior Loan officer, Assured Mortgage Getting the approval needed for an investment loan is heavily dependent on your credit score. Unfortunately, if you have "bad" credit, it can get in the way of making a purchase. Marty Eerhart talks about what you can (and can not) do to improve your credit score.
	Feature Article: Don't Become Another Statistic! Choose Your ARM Program Wisely Jeffrey Chalmers, Real Solutions LLC If you listen to the media, ARMs have become the new "dirty word" in real estate lending. Despite the negative press, a number of ARM programs exist that won't have you turning into another foreclosure statistic. In this article, Jeffrey Chalmers explains ARM programs, the terminology you'll encounter, and how to choose the right loan for you.