Restructuring Seller-Financed Notes For Profit

[Bryan Hancock]

I have been reading through much of John Behle's online material on restructuring paper for profit and it is quite fascinating. We have traditionally been borrowers of money, but as our wealth grows we are looking to put spare cash or syndicated funds to work and notes seem like a great way to do so passively.

What are your favorite methods for restructuring notes for profit? Breaking one note into two, increasing payments in trade for various things (balloon elimination, interest rate decreases, etc.), changing collateral, etc. all seem to be common ways of adding value. What has worked for you? What are common ways to restructure transactions that work in the real world and not in courses taught for profit?

I am particularly interested in restructuring wrap notes since I know tons of Austin-based people buying property subject-to and selling it on wrap notes. My suspicion is that many of these folks would be looking to monetize those wrap notes at some point.

[Loc R.]

Bryan,

My favorite techniques are to lower interest rates in exchange for more P&I every month. Combining those 2 you get a shorter amortization period. Since you bought the note at a discount, you are getting that discounted principal back faster (faster = better yield).

The other thing about this technique is that you are essentially getting the payor to "buy in" to their deal even more. They see a brighter "light at the end of the tunnel."

Another good one, which I haven't pulled off yet, but the first "technique" that Lonnie Scruggs wrote back, was the discounted pay-off.

Essentially, you buy a $10,000 note for $6000, and tell the payor that if he gets the money (new bank loan, borrow it from his mom, whatever) you'll let him pay you off at $9000 - a 10% discount. If he was set to pay 10% on the original note, and can get mom to lend him that $9000 at 8% - a double win for him.

Finally, I just bought a wrap on an Arlington, TX property at a nice discount. My SD-401(k) bought it. I can post details if you'd like.