I have mentioned two of these three mistakes in earlier newsletters, but because of the volume of notes I am currently seeing where note sellers are still committing these same errors, I think I need to revisit them to make sure you do not fall into a note buster trap.

Mistake 1. Structuring a note with a short term balloon for less than 7 years. I am seeing more and more notes where the balloon is 3 years or less, and the note seller has high expectations of getting "top dollar" for their note. I know the "gurus" will tout this as a viable exit strategy, but it in the real world, it does not go from the podium to the pavement.

The fantasy is that the payor will be able to refinance in 3 years, and you will get your lump sum payment. This is often a "selling point" note sellers say to me. "Buy my note now, and in three years or less, you will get all your money back, plus the discount". The problem is that if your payors could not get financing originally, what makes you think they will get be able to get financing in 3 years?

More importantly, in today's market, what are the interest rates going to be in 3 years, and will there even be money available for refinancing. In today's market , the answers are "I don't know". This is not even considering the value of the property might decline.. So why live in the illusion that cash will fall from the sky just because you have a balloon on your note

SOLUTION: If you sell your property using owner financing, make the terms realistic. Since you know refinancing in the next three years may be in doubt, why structure a note that requires it? A straight term of 20 years to 30 years is more realistic. If you must put a balloon, make it at least 7 to 10 years out. DO NOT make the note interest only. Many Note Buyers will not even consider an interest only note.

Mistake 2. Not getting AT LEAST 10% down. Even if you plan on keeping your note, having your buyers put money on the line increases your chances they will not just walk away from the note. This is important when you bring your note to a Note Buyer. "Hard equity" in the property goes a long way to make a note more valuable in the market, not to mention it is just sound investing.

SOLUTION: Demand 10% or more down.

Mistake 3. Believing if you have to foreclose, at the flick of a switch, the house will be turned back over to you in pristine condition. No repairs, no remodeling, no cleaning, painting, putting in carpet, etc. And of course there will be no holding costs or time delays. You will just foreclose one day, and sell it again the next day, right? WRONG. I read where the "average" to get a foreclosed home marketable is $12,000. I have not even mentioned insurance, vandalism, and more importantly the aggravation and time involved in a foreclosure. Successful Note Buyers take all of the above into consideration. So should you.

SOLUTION: Have a completed and reviewed credit application on your buyer and keep in contact with them regarding any changes in their status.

I see these 3 mistakes more and more, and often in combination. The note seller is then disappointed there is a heavy discount, or worse, their note is not even marketable. Do not fall into these traps, especially if you want to sell your note.

To make your note more marketable 1. Make the terms realistic 2. Get at least 10% down. And 3. Last but not least, do not visualize your getting the property back in the same condition you sold it or foreclosure being an easy no cost process.

To conclude on a positive "note", (Pardon the pun) while simultaneous closings are all but a thing of the past, good notes with 3 to 6 months seasoning are selling for good prices. What I am also hearing more and more are that good buyers are being turned down for loans at the last minute. This would be a perfect situation to owner finance, and sell your note when it has been seasoned for several months. However, keep in mind that even with note payors that have good credit: possible note busters include notes with short term balloons, interest only notes and notes with a low down payment . Be realistic about the current financial environment and you can create a valuable asset with your note.

If you are selling your property using owner financing, please contact me. I will help you structure your note to give it maximum value in today's market.

If you have a question on your note or a Note to convert to cash, contact me
I will be happy to discuss your specifics.


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Would you like to learn the hands on mechanics of how to broker notes? Bring a note to "co-broker" and as soon as the note is closed we will split the profits. Also I pay a referral fee for notes that are referred to me.

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By popular demand, THE NOTE PROFESSOR NOTEBOOK is now available in easy, downloadable E- book form for a the low, affordable price of $39.95. Other products are also available, including HOW TO MAKE OBSCENE PROFITS with SMALL MONEY, and GUIDE FOR SECOND LIENS. There is also a FREE download of CHECK LIST FOR OWNER FINANCING. Simply go to the NOTE BUYERS STORE. I can think of nowhere that you can find such information packed products at such incredibly low prices. We are still working out the bugs, so if you have any problems, be sure to contact me.

The winner of the presidential election will definitely have an impact on the economy. However, no matter who wins the election, there are still realities that cannot be ignored.
1. The bailouts of Fannie Mae, AIG, etc
2. Mass infusion of "capital" into banks
3. More industries wanting money, and Congress promising to increase spending

The reality that has to be addressed is how are all these programs going to be financed, and who is going to pay for it. There are only 4 choices.
1. Direct taxation
2. Indirect taxation of borrowing
3. Indirect taxation of printing money
4. A combination of the three

All three of these methods will have as an end effect of either decreasing the supply of money for productive use, or artificially increasing the supply of money by merely printing it, thus devaluing the dollar. All are going to have the same results. Higher interest rates and/or increase demand for money, making loans harder to obtain. All of the above will have undesirable consequences leading to what could be an inflationary recession similar to what we witnessed in the latter 70s and 80s. One main difference is this time the entire world is involved. Moreover, like America, governments world wide have consumed more than the ability of producers to produce, and are going broke. Not a good sign, especially during a period of inflation.

In America, politicians are ignoring the fact that real estate prices rose artificially because real estate loans were given to anyone and everyone. These artificial high prices must adjust to reality. By trying to prevent prices from falling, the "all knowing politicians" will only prolong the eventual correction. Sooner or later real estate prices will adjust to real market value. When you consider the price of real estate is directly proportional to the financing available, and add to this axiom, financing is going to be tighter and more expensive, is there any wonder why real estate prices are declining?

Does this mean not to invest in real estate? Heavens no. It just means be sure to buy right, act out of knowledge and not out of fear or ignorance. For me, buying property at tax sales at 50% or below "market value" is one of the best strategies in today's market. Another strategy is buying property using owner financing, where you have more control of the note and terms. Both of these have excellent exit strategies no matter what the market does.

After the election, I can give a more in depth outlook as to what to expect. If you have questions or comments, contact me.
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