H & P Capital Investments LLC
In conjunction with TEXRIC and Lonergan Law
Tom will team up with Gaylene Rogers Lonergan to
owner financing and notes from an investor's point of
view, as well as from a legal perspective.
the in depth subject matter, the workshop will be
broken down into 6 half day sessions on
from 1:00 p.m. to 5:00 p.m. The series will
this Saturday, April 18th with a review of last
topic of the calculator and legal requirements of
notes. If you missed last week's lesson, you can
catch up easily. We will then go into an in depth
analysis of balloon notes. You will learn the
different "balloon" traps and how to avoid
Discover how to properly structure balloons
or to hold. As usual, Gaylene will present the legal
perspective of balloons. This knowledge
save you thousands, not to mention
cost of each series is only $49, but you can
money by investing $199 for the entire series. The
topics of the series will range from how to
notes to buy and sell real estate, to how to use
for nothing down deals, to how to obtain 75%
and higher (safely), to the legalities and
foreclosing and how Texas Law applies to owner
financing. Like all Tom's classes, enrollment is
limited to 20 participants to encourage
interaction. There is no need to pay
hundreds, or even
thousands to gain basic knowledge of notes. Whether
you are a seasoned investor wanting to learn
time proven techniques, or a beginner
learn how to avoid "traps" I know of no other better
education at any price.
Go to TEXRIC to register.
Or contact me
any questions. You will need to be familiar with a
financial calculator. I will be teaching from the HP 10B
II because of its simplicity and low cost.
Do's and Don'ts of Balloon Notes
In today's economic climate many "gurus" are touting
owner financing is the new panacea as an exit
strategy for real estate. Often balloon notes are given
as the ultimate solution to the real estate
investor's problem of selling property in a tight money
economy. The theory is to sell the property now, then
have a short term balloon.
For example, a
for $100,000 with $3,000 down with interest only and a
three year balloon.
The fantasy being
that in three years, the buyers will miraculously be
able to refinance, and the real estate investor will walk
off with all the money due him/her.
investor can immediately sell the note and get
because the note buyer would be able to get his/her
back in a short period of time when the buyers
Then, of course, is the
old myth, "If they cannot make their balloon payment, I
will just take the property back in the pristine condition
I sold it." These strategies do not reach from
the "podium to the pavement". Do not be fooled.
Let's realistically think about this scenario. To begin, if
the buyers cannot obtain financing now, what makes
you think they can obtain financing in three years? Are
their credit scores going to improve in three years?
Probably not. Add to this the possibility the property
will decline in value only by a small amount. Even if
the buyers' credit has improved, the property's
decline in value will not support a refinance, even by
FHA standards. (To add gasoline to the fire,
some "gurus" are teaching to get more than market
price when selling your property with a short term
balloon. How is the property going to get
refinanced when the value was inflated from the
beginning?) Are you beginning to see these strategies
are not sounding good, because refinancing the
property is probably not going to happen. Live in
reality, not in illusion.
What about selling your note and getting a higher
price because of the balloon. It is true that on a
calculator the note buyer will enjoy a high yield by
purchasing a balloon. In last week's NOTE Workshop
in Dallas, we
learned that yield is a target only. True yield is
determined only after the payoff. Note buyers know
this and realize the note will probably not be able to be
refinanced in three years. Therefore, we will price
notes in one of two ways.
1. Buy the payments only, and leave the
seller with the balloon. (Sometimes we will buy part of
the balloon also, but this is becoming less common
than a year ago)
2. Anticipating the note will have to be
extended, therefore pricing the note as a straight
If it is an interest only note, many note buyers will buy
only the payments, and will not even consider
recasting the note.
If you want to sell your owner finance balloon, here are
some procedures to take to make sure your note will
have maximum marketability.
1. Make sure your property is not over
2. Make sure your buyers are credit
3. Get at least 5% down
4. DO NOT MAKE THE NOTE INTEREST
ONLY (This is true especially for commercial notes)
5. Make the balloon 7 years or more
6. Be ready to accept a partial purchase of
I will teaching about balloons in the next Workshop series on NOTES in Dallas
Saturday April 18th.
If you have questions about structuring a note
will be happy to discuss your specifics.
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By popular demand, THE NOTE PROFESSOR
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MAKE OBSCENE PROFITS with SMALL MONEY, and
GUIDE FOR SECOND LIENS. There is also a FREE
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Simply go to the NOTE
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We are still working out the bugs, so if you have any
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Tom's ECONOMIC OBSERVATION
The question I have received most often this past
month concerns the "stimulus" bill, and why this is not
positive for the economy. (Remember, an economy is
nothing more than individuals exchanging values) I
am again going to refer to Frederic Bastiat's classic
Look at "The Broken Window" and "Public Works"
Remember, government can only spend
extracts from producers, and more importantly,
governments consume, they do not produce. Since
this is tax paying time, this is the perfect opportunity to
out the illusion that government creates jobs.
take a simplistic example that governments create
jobs is a myth. Say
you produce $3 a year and hire one employee and pay
him/her $1 a year, you consume $1, and you will have
a profit of $1, which you will save and create real
capital (this savings will capital for future growth).
Now assume that a person (let's call him
George) is out of work, and in order to obtain George's
vote, the politicians promise to "create a job" for him
by the government's spending money. The politicians
spend money, and lo and behold George gets
employment, for $1 a year. The politicians w ill tout
how "their spending" has created a job for George,
how George is now spending money and the
economy is recovering. This is what is seen. But what
about what is not seen?
What is not seen is where did the politicians (when
you think of government, think of politicians and
bureaucrats, that who they are) get the money
to "spend"? They had to come to you who is the
producer. Since it took $1, to hire George, the
politicians had to tax you $1 to pay for George's job.
You now have some choices to make. Since the
government has taken $1 from your production, you
can either let your employee go which will mean there
is now another person out of work. In other words,
George was hired at the expense of your employee.
No job creation here, is there? Or you could take $1
out of your
profit, which will mean no money saved for expansion.
Without expansion, your business (the economy) will
stagnate. Or you could reduce your consumption,
which would mean other merchants would suffer, and
they will be in the same situation you are in. What is
not seen is that when the government takes your
money for George's job, you pay at the expense of
your employee's job, or your business growth, or
cutback in your own consumption, which results in
your merchant 's being forced to contract.
The point is governments cannot create jobs. The
best that can be obtained is to shift employment, not
to actually create jobs. If government spending (of your
production) could create jobs, the unemployment rate
would not have been in double digits through out the
Why can government not create jobs? Because
governments consume, they do not produce. Here is
an economic law that cannot be overturned by
Congress, the Supreme Court or public opinion.
CONSUMPTION CANNOT EXCEED PRODUCTION.
Governments are now consuming more than the
ability of producers to produce. The "stimulus" bill is
merely a form of government consuming without
producing, under the guise of creating jobs.
The question that is being ignored is "where does the
money from the stimulus" come from.
Politicians spending your earnings to "stimulate" the
economy is but one example of how a system of free
markets differs form a collectivist form of economics.
In free markets, values are exchanged voluntarily
where each side benefits. In a collectivist economy,
values are extracted by coercion resulting in one side
benefiting at the expense of another. In a nutshell, the
politicians are acting from a false premises in
economics: consumption need not be preceded by
deficits do not matter, and printing currency is the
same as producing values.
But what about the politicians having to spend money
to "jump start" the economy in a recession if the
producers choose to save their earnings instead of
spend it. Good question. I will discuss this myth in my
next newsletter. HINT: All money is spent
If you have questions, Contact
Me. It is
from your letters and comments that I get many of my
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