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H & P Capital Investments LLC
Issue 26
August 2007
by Tom Henderson
world 1

Quality Notes Are Still Selling for Ninety Plus Percent of Face Value

With the subprime meltdown, the real estate market declining in certain areas, mortgage companies and institutional note funders closing their doors, many would have you believe the world is coming to an end. Let's step back and take a deep breath.

Just as residential mortgages are drying up for those buyers with low credit, stated income, and nothing down, by the same token, if borrowers have good credit, can verify their income, while putting 10% or more down, these borrowers are having no difficulty finding loans. The same is true in the note buying industry.

I want to remind you that note buyers are still purchasing QUALITY NOTES for 90%+ of the face value of the note. Quality commercial notes are also being purchased at a high value to the unpaid balance.

Case in point: I quoted a note today at 94% of the face value. Why so high a price? Simple, the buyers put 20% down, the note was well seasoned, and the borrowers had excellent credit, and the interest rate was acceptable. These QUALITY NOTES are not anomalies, but are quite common, which is why many note buyers are tightening up on no seasoning, no equity, and lousy credit notes. We do not have to buy low quality notes. There are too many good notes out there.

However, keep in mind that getting a high price for your note does not come by accident. All the elements of prudent lending must be in place. I cannot stress enough about getting a credit application on your buyers, getting as much down as possible, and keeping good records, by making copies of your payments. These actions are essential to getting maximum value if you want to sell your note.

If you need help in structuring your note for maximum value to a note buyer or need a credit application, email me and I will be happy to help you. The time to start making your note valuable is when you create it. Then when you want to sell your note, you, too, can say, "Tom paid me 94% for my note."

Copyright H&P Capital Investments LLC All rights reserved

To buy a note or sell a note, contact me at www.hpnotes.com
Note Professor Notebook

If you have not attended a Note Professor "How To Get Rich with Notes" class, be sure and purchase the Note Professor Note Book manual to enhance your knowledge of creative real estate financing and note selling.

Owner Financing Education
Tom's Speaking Schedule
Note Class-September 22 & 23

Tom will be teaching a two day class on notes and owner financing on Saturday September 22nd from 8:30 a.m. to 1:00 p.m. and Sunday, September 23rd from 1:00 p.m. to 5:00 p.m. in Dallas, TX. This is a hands on class were Tom will teach the concepts of the time value of money, as well as how to use notes when buying and selling real estate. With the subprime meltdown, knowledge of notes is a must for all serious investors. TOM LIMITS HIS CLASS SIZE TO 20, so be sure to register early.
How to get Rich with Notes Class

Tom had the honor to be interviewed by Scott Britton for his Golden Members on "Unraveling Myths Surrounding Owner Financing." More of a conversation than an interview, it is a rare treat to hear two ol' pros discuss current economic events and real estate techniques. Visit Scott's website, Britton's Inner Circle , not only to hear this informative and timely dialogue between Scott and Tom, but also to check out Scott's other "no nonsense" education.

Tom will speaking on "How to Make Obscene Yields with Small Money" October the 4th through October 7th 2007. NoteWorthy Convention. Las Vegas, Nevada

Note Professor Notebook on sale at the NoteWorthy Bookstore.

Valid Reasons For Using Owner Financing
by Tom Henderson
owner 1

Last month, we dispelled the myth that you would get a higher price for your property if you used owner financing. In this issue we are going to discuss valid reasons to sell your property using owner financing. I am going to concentrate on two scenarios for selling your property using owner financing.

1. Cashing out of a problem
2. Keeping the note for income and yield.

Because the subprime meltdown is resulting in many rehabbers not being able to get financing for their buyers, and are now relying on owner financing , I am going to address this issue first.


As a note buyer, I am flooded with requests for note quotes from rehabbers, who are not able to find financing for buyers that have mediocre credit, not to mention subprime buyers. These rehabbers were once successfully using owner financing, then selling the real estate note as an exit strategy. However, in today's market, in order to sell notes with a so-so buyer credit, a rehabber has to have at least 10% and sometimes 20% down. This often means the rehabber will have to take back a "piggy back" second, then sell the 1st lien note for approximately 80% of the unpaid balance. Yes, this discount eats into the rehabber's profit, but bear in mind, the hard money loan is going to be paid, the credit rating of the rehabber will be saved, and the rehabber can move on to better investments.

Let's look at an example:

A house sells for $100,000, where the buyer puts 5% cash down , and the rehabber takes a 5% 2nd lien. If a note buyer will purchase the first lien of $90,000 for 80% of the unpaid balance, the rehabber can walk away with $72,000 for the 1st lien note, plus the $5,000 cash down and the $5,000 2nd lien. This should be enough to pay off the hard money lender and closing costs. The result is the rehabber now has a second lien note as his/her profit, but more importantly, the problem of cashing out and MOVING ON is solved. I am going to repeat an axiom I teach in my classes. ALL PROBLEMS LOOK BETTER WHEN THEY ARE IN YOUR REAR VIEW MIRROR. In investments, just as in life, we are constantly faced with choices. In this economy, the wise choice is to minimize losses, not to live in the fantasy world that subprime lending is going to return next week. Forget about making large profits, start thinking of Not Losing Money.

Keeping your note for income or high yield, as well as tax advantages are also good reasons for using owner financing. Take for example, the "paper out" technique, where you use your owner financed note to enjoy above market interest, and collect a cash flow for a period of time. Many burnt out landlords would rather sell their investment properties with owner financing, and still receive a good cash flow, without all the problems of tenants and maintenance. Plus these investors can also take tax advantages of an installment sale (consult your accountant on this aspect).

If you plan to keep your note, I strongly advise you still make your note as marketable as possible from the beginning. This includes obtaining a credit application on your buyers, keeping good records by making copies of the payments, and keeping abreast of your payors' employment and contact information. Remember to purchase mortgagee insurance. This way, if you want to sell your note in the future, you will have the necessary data at hand to meet the note buyers requirements and verifications.

Remember, it is the notes with mediocre credit and no equity that are receiving the largest discounts. The notes that have good seasoning, good equity, and a good payor credit score are still receiving 90% of the face value. Make sure yours is a quality note.

In summary, if you are a rehabber having to bail out to pay off hard money loans, selling your property using owner financing, then selling your note and moving on is the best option. If you want to keep your note for an income stream, high yield and tax advantages, be sure to do it with accountability and marketability, in case you want to sell your note for maximum value in the future.

Contact me if you need the proper forms for structuring notes for maximum value.

Copyright H&P Capital Investments LLC All rights reserved

Buy or Sell Notes

The amount still owed on a note. Also known as face value.

Tom Henderson
H&P Capital Investments LLC

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H & P Capital Investments LLC | 6138 Luther Lane | Dallas | TX | 75225

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