BiggerPockets

Well I'm answering my own question for the benefit of future readers. My attorney prepared an assumption deed and a warranty deed. The note holder was willing to let me assume the note. So voila, I just purchased my first property with no money down, just like the infomercials say is so commonplace. It took me 3 years to find this one, they are not commonplace where I live, but I'm glad I found this one :lol:

Hey Justin,
Well, I wasn't looking for a note when I found this one. A motivated seller called me from one of my ads. It turns out that she had bought the house from another investor years ago who had subsequently sold the note to a person who buys notes with all of his retirement portfolio. That being said, the guy has plenty of money to tie up in discounted notes. He tells me that he usually finds them by searching courthouse records. He's averaging 8-10% on his yields. I'm beating that in the stock market, but with notes there's no volatility. I told the seller that if the note holder would let me assume the note, she could deed the property to me. I will take over the payments, repair the house and sell the house on a new note. It essentially creates a wraparound mortgage. I pay $230 to the note holder, sell the house and become a note holder on a bigger price at a bigger interest rate. My spread will be $220.00/month. In my view, it beats making about the same (or less) in rent. I find it easier to collect a house payment than a rent payment because of the foreclosure laws. How's that for an answer? :lol: All of that to say, I don't look for notes, I create them. Are you looking to be a note holder?
I don't know much about notes but am trying to learn!

Justin,
The benefits as I see them are that you don't own, but in a sense you get to control. You receive monthly payments yet you have no responsibility for the property, no maintenance, etc.. What I meant about foreclosure is that the laws favor people who lend money. If you run the numbers of doing a property this way versus renting along with all of its hassles (constant repairs, changing tenants, trying to find good tenants and those who will pay on time). I'd rather sell the property. I often challenge landlords to tell me what their return on their investment is. Most people are incapable of figuring it or are too scared to! Go to bankrate.com, and look at the interest you will earn by selling a property for a given amount at 12% for x number of years. All of that interest money will be yours along with the amount that you marked up the property. An example: buy a house at $20,000, sell at $40,000 at 12%, your effective rate of interest is 24% for the life of the note. No fluctuation like you have in the stock market. Try finding a return like that anywhere in the world that will last for extended period of time. Good Luck.

John,

You've made some good points. My attorney didn't mention the issue of people not being removed from a note but rather moved back. I don't know the legal answer to that, and since I'm on the other side of the fence it wouldn't affect me. My goal is to never sell a note. I realize things happen and at some point I might need to ditch one, but for a person active in note purchasing that's an issue to know about.

Secondly, I too was appalled when the note buyer mentioned to me that he's now averaging 8-10% on his notes. He's been active in this for 30 years and of course has war stories involving much higher interest rates. He says that he's having a difficult time finding really good returns because so many newbies are buying notes right now. I suppose he likes the solidity of mortgages-vs-the ups and downs of the stock market. When I do deals, regardless of size, I don't look at the lump sum, I look at the percentage of increase on my investment. That's where the rubber meets the road.

That leads me into our third point. A lot of people are getting into real estate thinking that they will let a renter pay down their mortgage and at some point down the road through the magic of appreciation and full title, they will have a great nest egg. I know that this can work but I often see that it does not for many people. Most of us need income today so that with the incredible power of time, compound interest and money, we will have security. Most landlords cannot tell you the rate of interest they are getting on their money because they haven't ever figured it. If they did figure it out and look into other investment options, many would get out of the business as quickly as they got in :D

Ok, here's my figuring:

Carrying note @10%:
$16k investment
$39k gross return (roughly)
$23k net ROI

Rent @ $300 mo:
$180 per mo after 40% expenses
$21k net ROI
More hassel

Of course, this doesn't include a mortgage, and $300 positive cash flow for a rental is mighty good these days (generally around here the cap rate is 10%). So, the difference would be substantially greater.

Does this make sense? Am I missing anything?

Vicky

Hi John and Vicky and anyone else interested in the topic,
I'm sorry I wasn't real clear in my initial posting. I purchased a property and the purchase price was the balance of the existing note which the holder allowed me to assume. So yes I simply stepped into the borrower's/seller's shoes.

I love looking at real case scenarios. To me the $2000 less that the landlord could have made with all of its collection problems (renting a mobile home) steers me once again to what I've been doing, selling properties and toting the note. I think you've probably covered the expenses. Is any vacancy figured in there?

And by the way, I've financed several properties recently at 12%. That puts a little more gravy on top!

Michael,
You're on to my plan! My payment will be $230. I'll receive around $430. That $200/month for the next 10-20 years is not bad for a very few hours of putting a deal together and they can repair their own toilets :lol: