Why and How Private Notes Are Created

In previous chapters, I've made several references to situations where sellers are willing to finance all or part of the price of the real estate. They do this for two primary reasons: to make the deal happen and/or because they enjoy the cash flow.

When interest rates began climbing during the late 1970s, private paper became abundant because people couldn't afford traditional loans. Then during the savings and loan crisis of the 1980s, institutional loans were hard to get. Again, sellers had to hold notes to close their deals. These were individuals who didn't particularly want to be lenders, so they were willing to sell their notes to investors at a discount (i.e., less than the principal amount) to get their cash.

As the economy goes through its natural cycles, there are times when seller financing is more popular than other times. And as the awareness of seller financing increases, so does the amount of notes created each year. But even though this financing technique is becoming more and more common, most individual note holders have no idea how to find an investor to buy their note—and that's where you come in. You serve as an educator, explaining that they can sell their note and get the cash now, and then you serve as a facilitator, making the sale happen either as a broker or investor.

As a real estate investor, there may be times when you hold a note on a property you sell. You may opt to hang on to the note for the long-term cash flow, or you can sell it for immediate cash. That's what Lester Theiss did— Lester is one of my students I first mentioned in Chapter 4. He's an ordinary guy who has enjoyed extraordinary success in real estate. He agreed to hold a note as part of a creative financing package on a property he sold. He let the note age for six months; then he sold it and used the cash to buy more property.

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Millionaire Mindset Affirmation

Millionaire Mindset Affirmation

You already recognize that rich individuals think differently than middle class or poor individuals in every aspect of life. But particularly when it comes to money. That's why they're rich. Their selections and decisions just by nature bring about riches.

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