Building your “Power Team”

Building your “Power Team”
- without ever leaving your house -


Our company buys houses in several states and we don’t leave the office. The most frequent question I am asked is, “How do I handle the rehab … so far away?” You must build a team of people that you trust.

• Attorneys
• Sign Companies
• Printers
• Lenders
• Real Estate Agents
• Residents & BUYERS!!!
• Property Managers
• Appraisers
• Handymen
• Contractors

This can take several weeks to identify this group and it may take months to sort through the ones you like and the ones you don’t. As you buy more houses, you will need more people on your team and the best place to find these people is referrals. However, you can’t rely on other people to decide whom you will use.

Due Diligence is Your Responsibility – Just because another investor recommends someone, doesn’t mean they are the best person to use. References should be required of all “Team” members.

We’ll start with the easiest people to find; attorneys, sign companies, printers, lenders and real estate agents.

Attorneys – (When Wholesaling to other Investors). Let’s not get into the legalities and tax issues of “double closings”. This is where you use your buyer’s funds to pay the seller. You don’t spend any money out of your pocket. Your buyer writes a check to the attorney, the attorney pays the seller and writes you a check for the difference. Some attorneys will do this, some will not. If you don’t have the cash to fund the purchase, it’s nice to identify an attorney who will allow this. It can be as simple as asking. “Will they do a double close? And can you use buyers funds for your deal?” I recommend the honest approach, tell the attorney what you do.

If you are honest, with your attorney and your buyer there is no reason this can’t work. I take a very open approach. If my buyers want to know how much I am making, I tell them. I let them know, this is a double closing and how it works.

Some buyers have questions the amount that I make ($3000-$5000) but I ask them if the deal is a good one. If they say “Yes”, the amount I make should not matter. If they say “No”, then I may need to find another buyer. Either way, be honest with everyone involved in the transaction.

If you have the cash to fund the purchase or if the purchase is for your personal inventory, then the attorney relationship is not as vital. You simply need someone you can trust and get along with.

Before you decide whom you are going to use, ask to meet speak with the attorney in person or by phone. Make sure they understand you goals and are familiar with investment properties. Although this is not a requirement, if the attorney understands what you are trying to do, he or she can better protect you.

Sign Companies – This can be an easy one. All you have to have is Joe Sign Guy, but you can get more. I have used sign companies to put out and pick up signs in addition to showing properties to prospective tenants.

If you choose to manage your own properties, from a distance, you will need someone to show the house to tenants and make sure it is clean when they leave. Realtors, Appraisers and Contractors are great people to use for this, but sign companies are putting out your signs, at the house anyway. They may be willing (for a small fee) to let someone in to see the house.

Don’t use a large company or a national chain. Call a local one-man shop. You can find him through referrals from other investors or realtors in the area. This small shop will be more inclined to help you and easier to work with.

Printers – This is another easy one. Ask for referrals. Find a small shop that is local. Try to find someone who may have a part time employee who would be willing to put out your printed material. Your realtor and appraiser will be able to recommend someone local.

Lenders – This can be difficult. In North and South Carolina I recommend Financial Help Services (803-831-0056). They only handle investor loans and can provide Hard Money to purchase and rehab, then provide the convention 30-year financing. They are a great company and I use them for my personal deals in the Carolinas.

If you are buying outside the Carolinas, you will need to find someone that can loan in that area. Hard Money Lenders are available in most states and are the easiest way to buy and rehab a house without using your own cash. Most charge 4-6 points to originate the loan and 12-18% interest. This is not a bad price to pay for the convenience of having money in 24-48 hours, if needed.

Hard Money Lenders are quick, but expensive. They provide a service that mortgage lenders will not and banks do reluctantly. They give you the money to purchase the house, then provide the money to complete the rehab.

Convention Lenders are much less expensive but require better credit, more documentation and take a lot longer to complete a deal. However, you can’t keep a hard money loan on your property and expect to make any money.

It’s nice to find a source for your funding that can provide both; however, most only do one or the other.

Whoever you use, make sure you have them lined up prior to make your offers. You don’t want to get a property under contract only to find out you can’t get the money to buy. This makes you look bad and delays the sale of the house. The investment market is a small one and you don’t want to develop a reputation for not being prepared. This opinion will travel.

Real Estate Agents – This is a tough one. You should never put all your eggs in one basket; however, you do want to develop relationships where agents know who are and that you are a serious buyer who can close multiple deals. The only way to do that is get to know your agent. Find a buyer’s agent willing to do some legwork.

Many agents are lazy. They may not even take a picture for MLS, if the property is not going to make them much money. If they do get a picture, there may only be one. If you have an agent that knows you can get that house off their desk, they may go the extra mile for you. A good agent will take pictures for you and can answer your questions about the house.

When you call an agent you need to know a couple of things. What work does the house need? What will it be worth, if that work is done? What will it rent for? What is the average time on the market? If they can’t give you this information on their own listing, they may not be the best agent to use.

You need an agent who has been to the house. You need an agent who is not afraid to give you a value. (If they won’t give you and ARV, ask what it could be re-listed for. What would they list it for – fixed) You need an agent who will get you some pictures, if they are not on MLS.

I almost always call the listing agent. Even if another agent brings me the house. I call the listing agent for my information. I make my offer with the agent who found the deal, but he or she may not have the information I need, because they may not have been in the house. If I can’t get the information and/or interior pictures, I need an agent who will go to the house and find out.

They must understand that I am going to buy the house without seeing it. They need to be my eyes and I need them to do a good job.

After I have purchased a couple houses from one agent or office, they are more willing to work with me. They may offer to get pictures or have a contractor look at the house. This is the relationship you are trying to develop.

Next we’ll deal with buyers. If you are going to wholesale some or all of your houses, you need to know who you will sell them to and have a group of people to market to, before you get your house under contract.

Buyers – This can be a subject all by itself. I could write pages on just this subject. It has taken 8 months to build a buyers list of over 10,000 people; however, I was selling houses within a month of starting the wholesale business that I am in now. Although there are 10K people on our investor list, my core list of “real” buyers consists of less than 100 people.

You can find buyers at local REIA Meetings, through realtors and referrals, on Yahoo groups, and much more. You only need one buyer to buy your property.

Talk to your realtor, ask your appraiser and let your contractor know that you want to meet other investors in the area. You can quickly find out who the serious investors are. If you are going to wholesale houses, take the time to get to know other investors in the local market and online.

Yahoo Groups are a great place to meet people that invest in a certain market. There are groups all over the US and many markets have groups that focus on a small area. You can find out about these groups through the local REIA, realtors and appraisers.

As you start to become “known” for buying, you will have people contact you.

Building a database of fellow investors is vital, if your goals include wholesaling.

If your goals don’t include wholesaling, then you need to have tenants and buyers for your houses. For the most part, this is covered in the MyMarketing and RentHigh&KeepTenants documents (available by request from greg@sandjprop.com).

Residents – For more information on finding tenants, renting your properties and/or selling or lease optioning property, please email me to request the MyMarketing or RentHigh&KeepTenents documents.

If you decide not to manage your own properties, you will need someone local to handle the rental for you.

Property Managers – Like your real estate agent and attorney, you need to find someone you can get along with. Interview them, as if you were going to rent a property to them. You want to make sure your property managers will handle your house like a landlord not a slumlord.

Make sure you review the contract they use. If it does not fit your needs, make sure they will allow you to add or remove items to build a lease you are comfortable with. Remember, they work for you. They need to represent you.

Find out how they handle repairs and who does those repairs. Make sure the lease they/you use covers minor repairs and damages caused by the tenant. IE: toy cars flushed down toilets, clogged dishwashers and disposals, etc. Some repairs should be paid for, by your tenants not you.

Appraisers, Handymen and Contractors – can be much harder to identify. Not only do you need people that you trust and can work with you need someone that understands investment property and your investment goals. If you are going to retail a house for $175,000, the rehab will be handled different from a $60,000 rental house. Also your appraiser must understand the need to review the house, as if any needed repairs were complete.

Unfortunately there are appraisers who will give you whatever reasonable number you put on the appraisal request. You don’t need that. You need someone who will tell you, if your house is not worth what you think. There is a little trick to finding this out.

First, make sure your appraiser can do an appraisal “Subject To” repairs. This means that the appraiser goes through the house and does the appraisal, as if all the repairs have already been completed. This is a value the house WILL Appraise for, when the rehab is complete.

Next, make sure you’ve got a good appraiser. If you have a house, the realtor said will be worth $100,000, if repaired, send the appraisal request higher. Tell your appraiser you think the house is worth $120K, repaired. I like to send more than one appraiser to a property, until I know I have someone I trust. Tell your appraiser(s) that you want the house appraised as if “…any needed repairs will be done. If the house needs carpet, we’ll put in carpet, if it needs paint, it gets paint.”

If three appraisers review the house and all come back the same, you probably have three good people. If two come back at $102K and $100K and the last comes back above $115K, then you know you may not want to use the last appraiser.

Occasionally, you should give the appraiser a value that you know is wrong. Give him/her a value that is $10-15K above or below the actual value. You should get a call saying the value is not going to be what you expect. This is a good appraiser. If the appraisal comes in high or low, it may be time to have a talk with your appraiser and find someone new.

The same approach can be taken with your handymen and contractors. Tell them you need the job done for $5000, when you know it will cost $10,000. Make sure they are not cutting cost, just to get the job. Some trimming is fine, but cutting the price in half, just to get the job, will end up giving someone poor work quality.

When identifying a new contractor, be difficult. Ask for the moon. Tell him/her that you want a rehab quote with pictures and estimates broken down room-by-room. If they give you this, then you have someone who will work with you.

Since time is one of the biggest factors when rehabbing a house, make sure your contractor gives estimates of completion time. Also, make sure they complete your quote quickly. If you have a 10 day inspection, tell your contract “We are rushed, our inspection is only 24 hours, can you get this done for us and fax a quote to me in the morning?” You are trying to see if they follow through on what they promise.

Also, send more than one handyman to a job, unless you’ve worked with him before. If you have a new person, make sure they are not the only one to give you a quote. They may be high or may do poor work. If you send three or four people to the same house, you will have a good idea of the scope of work required to complete the house.

Last – make sure you contractor of handyman is on the same page as you. My philosophy is that I will not rent something that I would not spend the night in. If the house has cat pee in the carpet, I don’t care how new it is, I won’t sleep in that house. If the doors are falling off the kitchen cabinets, I would not want to live there, I would want the cabinets to be repaired.

“We want the home in a condition where you would spend 30 days living there, if something were to happen to you own residence. We are not as concerned with the neighborhood, only the condition of the home.” Notice I call it a “home” and not a property. This makes it sound more personal. We say this to any new contractor. When they call to ask about replacing cabinets, flooring or paint, I always respond like this, “Would you live with it as-is?” If they say no, I tell them to replace it.

As a former tenant and renter, I know what it’s like to be where my tenants are. I want to make sure that I provide a home that I can rent to them and still sleep at night. As a further step, I will not wholesale properties that I would not own myself. I would not wholesale a property, just because I don’t want it myself.

It’s okay to pick the best deals for yourself and wholesale the rest, but you don’t want to wholesale deals that are not good enough for you. If you would not own the property, you should not sell the property.

I hope this helps you with finding people outside of your local area to help handle any and all issues you have with your properties. If you have any questions please feel free to contact me, by email.


Thank you,Greg GardnerGreg@InvestorsRehab.com

Investors Rehab, Inc.4341 Charlotte Hwy. Suite 211Lake Wylie, SC 29710
Office: 803.831.0056 (Ext 308)Fax: 803.831.0805

This is for the use of its intended recipient only. The information contained in the message is strictly confidential. If you have received this message in error, please notify the sender immediately by e-mail and delete all copies of the message. The individual sending this email is not a licensed attorney or accountant. Before making any decisions using information contained in this email, our websites, teleconferences or any other form of communication, whether written or oral, you should receive advice from your licensed professional and perform your own due diligence. All information is subject to verification and errors and omissions. All properties are available until a signed purchase agreement with a deposit check are received.

Rehabs 101 - Free Recording Download

“REHAB 101 Tele-Class”Alex Gurevich Interviews Pete Youngs

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The problem with stocks

The problem with stocks
www.motleyfool.com
According to modern portfolio theory, rational investors will choose to diversify holdings in their portfolios to reduce risk while maximizing returns. Numbers back up the idea, but it's only half true. You can't really maximize your returns by diversifying, but you can reduce the risk that your portfolio's value will bounce around like a rubber ball from year to year -- otherwise known as volatility.
Yet some superior investors insist diversification is completely overrated. Take Charlie Munger, for example. Munger, who also happens to be Warren Buffett's business partner, has famously said that he and Buffett "... don't believe that widespread diversification will yield a good result. We believe almost all good investments will involve relatively low diversification." Indeed, Berkshire Hathaway's portfolio has provided ample support for this belief in recent years.
And therein, Fool, lies the fundamental problem with investing in individual stocks: Buy a lot of stocks and, as Munger says, you'll probably limit your upside. Buy only a few and you'll be subject to higher volatility. Well, that, and you'll dramatically increase your risk of substantial capital loss.
No matter how good the stock-pickers here at the Fool are, we'll never, ever be able to help you avoid those problems if stock investing is your game. You'll either simply have to deal with it or forsake stocks altogether. Sorry, pal.
Would that really be so bad?That's why I have to ask: Why own stocks? Is it really worth the hassle? Not unless you're willing to spend some time on the endeavor, and you enjoy the idea of finding and buying what others won't, earning just rewards when you're right. That might sound good to many, and maybe even to you. But I'll bet most would rather eat a scoop of spinach-flavored ice cream than suffer through the wild gyrations of a high-risk portfolio.
Besides, you don't have to own individual stocks to generate superior returns.
How could that be? Managers, says Champion Funds lead analyst Shannon Zimmerman. His picks are being run by some of the world's best stock-pickers. And they've been at it for, on average, close to a decade. No wonder 75% of the funds he's recommended are ahead of their indices. Heck, with that much help, how could he lose?
Shannon's secret sauce comes from trimming the fat from the mutual fund market to find the best. That's not easy. For example, researcher Morningstar tracks 6,300 mutual funds. But certain key attributes lend clues. Among them: long-term manager tenure, managers who are invested in their own funds, a record of high performance, and a relatively cheap expense ratio. Have a look at the comparison between the average champ and the average domestic stock fund:

Domestic Stock Fund Average
Champion Funds Average
Manager Tenure
4.5 yrs
9.8 yrs
Expense Ratio
1.44%
0.98%
12b-1 Fee
0.41%
0.01%
+/- S&P (3 yrs.)
1.07%
4.54%
+/- S&P (5 yrs.)
2.05%
10.67%
Turnover
96%
50%
*Data through September 2005
Invest with the next Peter LynchThe irony of the stock market is that you can invest in formerly stable companies and still lose money. Just ask those who've had money in New York Times Co. (NYSE: NYT) over the past five years. Or Avaya (NYSE: AV). Or Dow Jones (NYSE: DJ). Or Eastman Kodak (NYSE: EK). Or, perhaps ugliest of all, Mercury Interactive (Nasdaq: MERQE). That's why diversification is still en vogue and will be for some time to come.
Great funds, on the other hand, don't have this problem. Diversification is built in, and the picks are combined into balanced portfolios assembled by world-class managers. Take Peter Lynch of the Fidelity Magellan Fund, for example. He bought and sold thousands of stocks during his tenure, and those who invested with him saw 29% annual returns.
Is the next Peter Lynch out there? Absolutely. You might want to join the search if your goal is the highest possible returns from your fund portfolio. Fortunately, it's easy to do. Just take a risk-free trial to Champion Funds today. You'll get access to every one of Shannon's picks, numerous interviews with top fund managers, and three specific model portfolios, all of which are beating their comparative benchmarks.
The Foolish bottom lineIndividual stocks are always a great option for the business-focused investor. But what if your only goal is the highest possible returns? What if you don't give a lick about business? Then you're like the homeowner who has never learned a thing about maintenance. And just as you should forget trying to fix the plumbing yourself, you should probably forgo individual stocks in favor of funds. Your house, and your portfolio, will be better off for it.
This article was originally published on September 26, 2005. It has been updated.
Fool contributor Tim Beyers still considers himself a stock jock, but Shannon's performance leaves him wondering if he should be. Tim owns shares of Berkshire Hathaway. You can find out what else is in his portfolio by checking Tim's Fool profile, which is here. The Motley Fool has an ironclad disclosure policy.

Private Mortgages and Notes - WJM

Message from Brian at www.creiu.com - This email is all abut creativity and notes - please read carefully!
----------------------------------------------------------------------------

Subject- Private Mortgages and Notes

Hello All,

I hope my 7-part e-mail course "How To Get Started Profiting From Notes" has been of help to you.

Here's another Bonus Lesson:
I asked my wife, Alison, to tell us about her most unusual note deal.
It's quite a story -- in her words, "a textbook case for those skeptical about seller-financed real estate deals."

I haven't been able to send any bonus lessons for the past month, as we've been in Europe. We had a fabulous time -- we took a 12 day Mediterranean cruise and then drove around exploring Spain. I want to thank our note payors for working hard every day so they could send us checks while we were on vacation :)

Cheers,

Bill Mencarow
President, The Paper Source, Inc.
http://www.PaperSourceOnline.com
http://www.cashflows.org

P.S. Is it really possible to create your own notes yielding 25% - 50% and more? Find out how at http://www.PaperSourceOnline.com/dowinfo.htm


"Lorelei's Legal Lessons: The Essential Guide For Successful Note Brokers"
by Lorelei Stevens

"Lorelei's Legal Lessons is a note buyer's bible! If you buy notes or are thinking about buying notes, this book is critical to your financial health and well being! Contains valuable insights based on research and knowledge coupled with years of practical experience.

Don't buy any notes until you have given consideration to the gems of wisdom contained in Lorelei's Legal Lessons...packed with great practical information and insights!...an essential tool in the note buyer's toolbox...helps you avoid the rampant pitfalls...

This book tackles difficult legal concepts and communicates them in a language and style which the average note buyer can understand."
-- Jerry James, Attorney & Note Buyer (20 Years Experience) Salt Lake City

"If I had read her book about 6 years earlier, I would be $200,000 happier."-- Rick Cogswell, Katrick & Associates, LTD, Chicago

Download Lorelei's Legal Lessons and get it right now!
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--------------------------------

MY MOST UNUSUAL NOTE
A textbook case for those skeptical about seller-financed real estate deals
By Alison Mencarow, Publisher, The Paper Source Journal

"Hello, I am hoping you can help me."
That was the opening of an e-mail. As publisher of THE PAPER SOURCE JOURNAL I'm used to receiving a lot of requests to buy notes and make loans. They're usually such oddball notes I rarely get past the first perfunctory questions before ruling them out.
But this one was different.

The e-mail message continued, the writer explaining his personal situation. He was disabled, his wife soon to be on kidney dialysis. His credit was destroyed when he became disabled; a balloon of $6,500 on his home was due in 8 months and the note holder refused to extend it. He was looking for a loan to pay the balloon. All of this information was in an e-mail he sent me, a complete stranger he found on the Internet.
I don't make loans and didn't want to get involved, but felt so sorry for him that I asked for more details. He e-mailed the information, and I immediately saw this was (in Edd Lay's terminology) a "3 crappie" deal:

bad house,
bad neighborhood and
payor with bad cred*it.

My husband Bill thought I was joking when I gave him the details. A veteran note investor familiar with the
area thought buying a note there was a bad idea. None of that stopped me. I offered to make my e-mail friend (I'll call him Jim) a low-interest loan to pay his balloon, pending my inspection of all the necessary documents which I asked Jim to send, along with substantial personal information including six months of bank statements. If Jim were a con man I'd never hear from him again. But sure enough, everything I'd asked for arrived shortly. I felt the deal had to be legitimate: the settlement sheet was a very simple hand-typed document from the title
company (nothing like a HUD-1), and the note was only one paragraph long. A con man would have used standard forms!

---------------------------------------
Learn to profit from the hottest cash flow markets around!
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---------------------------------------
In the meantime, I told Jim I'd rather purchase the existing note including balloon, which would give me a good yield, instead of making the loan. We would just modify the note to reflect our new terms amortizing the loan.** He said the note holder (from whom he'd bought the house) was 93, uneducated and hard to deal with; she wouldn't be able to understand selling the note.

I explained to Jim that with the loan he would pay all closing costs; if I could purchase the existing note he would pay nothing.

(Editor's note: Alison knew you never tear up the old note and write a new one, you always modify the existing note. If you write a new one, it could become subordinate to existing liens.)

"Please Burn Down The House"

The paperwork from Jim was O.K. with only a minor problem that could be solved. I called and spoke with him for the first time; previously our only contact was by e-mail. I now learned that Jim had several problems with the seller ("Mrs. Seller"). It was obvious that she was doing her best to make him default on the note. She had moved at least twice and not given him her new address for mailing his payments. Most disturbing, her son urged Jim to burn the house down and default on the note!

(The land is more valuable without the house). Jim was terrified they would eventually be successful in taking
his home away, and he was immensely grateful that I was willing to make the loan.

The Payor Negotiates For The Buyer

Two months after our conversations started, Jim e-mailed to say Mrs. Seller was in dire straits and might entertain my offer to buy the note. I asked him how to contact her, but Jim said she wouldn't understand who I was. I decided to ask Jim, the note payor, to make my purchase offer (I don't recommend that technique, but this deal was so bizarre anyway, I thought what the heck...) I coached him on what to say, and what not to say, and gave him my bottom line price.

After a few days, Jim e-mailed to say Mrs. Seller didn't like my price, but he thought she would accept $500 more. Jim offered to pay the additional $500!

The deal was finally accepted. (I applied Jim's $500 to his first payment.) I used the local small town title company that had closed the property sale six years earlier. They were wonderful and got to work the day I called. Just as Jim had said, the seller was very difficult for them to deal with. After lots of phone calls, the deal was finally signed and recorded.

The Importance Of Reading EVERYTHING

The small paperwork problem I mentioned: The property sale was in Missouri, and since Mrs. Seller had moved away from the area, she had the General Warranty Deed notarized by a notary where she'd moved. I noticed that the notary wrote that Mrs. Seller signed the deed October 4, 1995; then the notary wrote that her commission
expired September 30, 1995! Because a title insurance policy had been issued I didn't really think this would be a problem.

I've since talked to many long-time note buyers and no one has seen anything like this. My title company drew up a Quit Claim Deed for Mrs. Seller to sign, stating in it the purpose was to perfect the title, referring to the notary's error. Problem solved.

Problem *almost* solved. My title company in Missouri recorded the documents. Anxious to make sure the Transfer of Lien had been recorded, Jim went to the courthouse to check on it. He was sharp enough to discover in the Quit Claim Deed that Mrs. Seller's new notary's commission had expired five months earlier!!
(Jim was unaware of the problem with the original deed. I didn't alert him to it, afraid it would scare him.) After a few more phone calls my title company discovered the notary had just written the date wrong and her commission was still valid. The Quit Claim Deed was corrected and recorded once again.

Deeds to Jim's property are now recorded three times, two of them correcting problems in the previous!

Throughout this entire transaction I've only spoken with Jim once; all our correspondence has been via e-mail. I had no contact with the noteseller whatsoever.

Epilogue

How did things turn out? What I initially offered as a low-interest loan to a stranger on the Internet instead turned into a note purchase with a very good yield. Jim saved money because he didn't incur the costs of a new loan.

The story of Jim's home purchase is a textbook case for those skeptical about seller-financed real estate deals. His bad cred*it disqualified him for a conventional loan (and most seller financing). The house he wanted to buy was not in very good shape so it wasn't attractive to many buyers. This was a perfect match.

Jim was able to purchase his home because of seller financing. Mrs. Seller was able to sell an undesirable house, and then sold her note with balloon several years later for a very small discount. I, the note buyer, am making a very nice return on my investment.

How is Jim paying? The same Jim with credit so bad I didn't even bother to check it? The first payment he made to me was in cash that he took to the title company (his $500 for the note purchase), before it was due, without being asked. Before his next payment was due he e-mailed asking if I wanted a personal check, bank heck, money order? Did I want it sent registered, certified? (Although I told him personal check via regular mail, he sent a bank check, registered mail.) When the mailing labels I promised to send him hadn't arrived yet (because I hadn't yet sent them), he anxiously e-mailed to remind me that he needed them so he could send his payment.

His payments always arrive early, and I'm certain they will continue to arrive on time. Unlike a lot of note payors,
Jim understands the importance of making timely mort*gage payments.

Jim was like a lot of us, like a lot of our friends. He was well educated, and had a good paying white-collar job.
That is, until an accident and several surgeries rendered him unable to continue working. Medical bills used up all of his savings. Eventually, Jim, his wife with kidney disease and their children ended up on the street. They were living in their car when they found their current home.

He appreciates his home in a way that most of us probably can't. Jim knows what living on the street is like, and he's determined he'll never end up there again.


Alison Mencarow is a note investor and is co-founder and Publisher of THE PAPER SOURCE JOURNAL. Formerly she worked as Press Secretary and writer for two members of Congress in Washington, D.C. and on the speechwriting staff of the Vice President of the U.S.

(I, her husband, think that what Alison did in the above article is an example for all of us of bringing the love of Christ into the business world; a great Christian testimony.)

Her e-mail address is alison@beecreek.net If you liked her article, please let her know!

-----------------------------------------------
We've just published a brand-new e-book on using your IRA to buy notes and real estate. Why would you want to do that? Says the author, Steve Case:

"I personally have used the strategies and techniques that you will learn in this book to catapult a Roth IRA from just a few thousand dollars into a sizeable account approaching seven figures. I didn't have to wait 20 or 30 years using compound interest to make it happen. My account is less than 5 years old!" -- Steve Case

These are the secrets that very few professionals know, and that are shared by only a handful of financial advisors to the rich, but that commonly go unnoticed by the rest of the world.

For more information and to order "Tax-Free Real Estate Investing," go to http://www.papersourceonline.com/tfreinfo.htm The book is only $19.00 and you can download it immediately.


Visit these great websites --
The Cash Flow Dollar Store: http://www.cashflows.org
The only note/cash flow seminar we recommend, taught by the man who has brokered more privately-held notes than anyone in the world: http://www.cashflows.org/seminar.htm
E-books, software, home study courses: http://www.PaperSourceOnline.com/products.html
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Quick Start in Real Estate Investing

Here is a GREAT Texas style Quick Start Plan !

Brian from www.creiu.com
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Rick Brown’s Quick Start Program

Congratulations on taking the first step on your road to success & achieving your goals, dreams and real financial security. Let me assure you that the investment you just made is the best investment you will ever make! Remember, you are investing yourself, your financial future and your family.

Sometimes listening to friends & relatives can be dangerous. When you tell anyone what you are doing many will tell you it can’t be done. That’s because they don’t have enough information. If they knew what you know they would be doing this too. This is a very unique opportunity.

Don’t forget when we talk about buying real estate with little or no money down it doesn’t mean there is no money involved it just means you will be using someone else’s money. Here are some things you can do between now and your three-day training class.

1. Pick a primary area or neighborhood. It should be close to where you live, work or travel to on a daily basis if possible. Pick an area that is moderately priced, where there is high demand. Get to know property values (sold prices) in your area so you know a good opportunity when you see it.


2. Find a good realtor in your area. Tell them you are a real estate investor. You are looking for new listings with motivated sellers. Tell them are looking to buy properties in the area. Tell them you can pay cash and close quick. Would you like to be my realtor? Great! Then ask them for a CMA of the neighborhood. CMA stand for a comparable market analysis. Ask them for a full print out. This will include all pertinent information on all active properties currently for sale, all properties under contract pending closing and all sold properties over the last 90 days. Tell them will go out and drive by all the properties. If you see something that looks you will call them up, they can set up a showing and write up an offer and make a commission if you like it. First look at the sold properties this will tell you the real value of the current active properties that are listed for sale in that area. On the print out the realtor gives you LP: means list price. SP: means sold price. DOM: means days on market.


3. Ask the realtor to provide you a list of all the property owners in your neighborhood. Explain to the realtor you are interested in doing some of your own prospecting for motivated sellers that do not have their properties currently listed for sale. Tell that if you do find a highly motivated seller because of their help you have them write up the offer and will gladly pay them a commission.


4. Now that know what properties are selling for look at the active properties. Remember the only time a realtor will have anything of value to you is if it was just listed that day or the sellers just did a major price reduction because they are now motivated sellers with “Don’t Want It Ities”!


5. Scan the real estate classified section of your local newspaper daily. Look for phrases such as desperate, motivated, must sell, relocating, divorce, estate sale, seller financing, make offer; flexible, For Sale By Owner (FSBO), these are all signs of what might be a motivated seller with a disease called “Don’t Want It Ities”!


6. Check the houses and apartments for rent section look for ads that have an area code that is out of that area. You’re looking for people that are absentee owners trying to manage their property from long distance. They may be motivated sellers.


7. Get motivated sellers to come to you. Spread the word and give out your business cards to friends, neighbors, relatives, coworkers, your doctor, dentist, lenders, realtors, and attorney’s. Put a sign up in the neighborhood, send a letter out to all property owners in your primary service area, run your own ad, put up 3x5 or 5x7 index cards on bulletin boards. Sample “I need to buy a home in neighborhood! Can pay cash and close quick! No agents! No salespeople! No commissions to pay! Your phone number.


8. Here are some powerful internet sites that that offer an abundance of valuable information that can help you identify properties and opportunities in most area’s to speed up your success http://www.homestore.com/, http://www.realtor.com/, www.domania.com, www.ziprealty.com you can check property values, current average appreciation percentages, properties for sale, prices, schools, shopping, transportation, crime rates as well as other valuable information about most all areas of the country. You can check property values for most areas of the country at http://www.domainia.com/ and http://www.homeradar.com/. You can check property values at www.domania.com/homepricecheck/index.jsp or http://www.homeradar.com/.


9. When you find a motivated seller find out what they want, how long has it been on the market, what do they owe and why are they selling. Then find out what’s it’ really worth (what could your Realtor sell it for in less than 30 days not the listing agent).


10. You need to analyze each property quickly and determine whether it is a property is worth pursuing.


11. Here are a few areas that can generate big profits and residual income for you. First decide what kind of an opportunity it is: #1 is it a property that is under value that you are going to tie up under contract, assign your contact over to a ready and willing buyer and or investor and get paid a lump sum of money by way of an assignment fee or carry back a sellers second mortgage and create residual income (for this type of transaction you do not need an investor, #2 is it a property that you are going to close on property fix up and resell at market value for a profit (investor or lender will be needed) or is it a property that you are going to buy and hold because the property has a positive cash and will provide you long term residual income (investor or lender needed).


12. In order to assign it over to another ready & willing buyer and make a minimum of 5% to 10% assignment fee so you must be able to buy it at least 12%-15% (this includes your profit and a realtor’s commission) below what a realtor can sell it for in less than 30 days. If you want to make a larger profit just increase the percentage.


13. If you sell your self by running your own ad delete the realtors commission percentage or make the extra profit. Sample ad for selling it yourself:


14. No Money Down! Must sacrifice! Beautiful 3 bedroom 2 bath (home, condo, coop or apartment) in (subdivision or neighborhood) worth $300,000 .00! Comes with $50,000 equity (change to whatever amount is appropriate to your transaction)! First $250,000 takes it away! Must close within __days. First come first serve. Vultures Welcome! Your name & number.


15. When making any offer on any property make sure that after your name as the buyer you must add these words “and or assigns” or “and or nominee” on the purchase agreement. This legally gives you the right to assign your rights in that purchase agreement to another investor, retailer or ready and willing buyer without the seller’s approval.


16. To make a risk free offer: Make sure in the special terms & conditions section of the purchase agreement you include this clause.#1.This offer is subject to and contingent upon the inspection of said property by the buyers investors within ____ days of acceptance of this offer (number of days can vary) should buyers investors not approve of said property the sellers hereby advise, authorize and instructs the escrow / title company (neutral third party handling the transaction, could also be an attorney or real estate company in some parts of the country) to immediately refund all earnest money deposits back to the buyer”.


17. Another possible option instead of an assignment is to sell the property before you close under a separate contract to purchase subject to the closing of your contract and close both transactions back to back simultaneously. If you use this option you will pay two-escrow/ title company fees.


18. Look for vacant houses or properties that may need some TLC, paint carpet and landscaping.


19. You can find an assortment of useful real estate forms & contracts at http://www.totalrealestatesolutions.com/ by clicking on the Tools and Resources section that is located on the home page towards the bottom of the page. There are numerous forms including but not limited to an assignment of contract, generic purchase contacts and rental forms. I recommend using your local purchase agreements these can be obtained from the local board of realtor’s office as well as other forms and agreements.


20. Only buy and hold properties that have a positive cash flow. Here is the formula for getting a positive cash flow: Annual gross income minus annual gross expenses including a vacancy factor, property management fee (15% of gross income) equal your annual net operating income then multiply the annual net operating income by ten. That is the maximum you can afford to pay and have a positive cash flow. If it doesn’t have positive cash but it is still under market value tie up the property and make an assignment fee.


21. Start lining up private investors. Look in your local newspaper, The Wall Street Journal, USA Today, the Internet and word of mouth. In the newspaper investor ads usually say, “Need cash we lend money secured by real estate. Private investors usually will lend up to 70 to 80% of the value of the property and want 8%-14% interest secured by a 1st or 2nd mortgage.


22. One of my lenders is a person named Jeff Del Dotto he can do loans in 48 states. He has loan programs that will lend up to 97% of the value of the property you may contact him at (914) 286-4022. Call him if you need a prequalification letter or when you have a real property under contract that has a positive cash flow or you need cash to close fix up and resell.


23. Get business cards made up: Real Estate Investor, your name address & phone: You can get free business cards at vistaprint.com

You can get great info on upcoming tax lien and tax deed sale dates @ http://www.taxsalelists.comand/ for a nominal fee; you can even get data enhanced lists to properties nationwide.

Bexar county in Texas which is in the San Antonio area pays up to 25% every six months, they hold tax deed sales on the first Tuesday of every month you can find out information on the properties and the sale at www.co.bexar.tx.us/tax contact ph # is (210) 335-2251. The law firm that handles all the tax sale properties for Bexar County may be contacted at (210) 225-4422.

Remember to find a good creative experienced Realtor to work with. A good Realtor can be worth there weight in gold.

If you are going to find a property to assign over and make an assignment fee always try to get as long as possible to close (90 day closing) so you have time to find a ready willing and able buyer to assign it to.

Set a realistic and easy to achieve 60 day goal. Be specific and state a reason: (example: I want to own my first rental/income producing property 60 days from DATE and I want this because: state reason and write down what directed actions you are going to do to achieve your goals!

Visualize your goals as if you have already achieved them. Then set a 1-year, 3 year and 5-year goal visualize your goals as if you have already achieved them and come to the training. Fasten your seat belt and get ready for your journey to great abundance! You must get out there and get a real offer (in writing) in front of a real seller. When you do these they will know you’re serious and then they only have three options: approve it, reject it or counter it!

You are DNA coded for greatness; don’t let anything or anyone get in the way of you achieving your goals & dreams. Stay focused, stay persistent and shine bright always. I’m very excited for you and I am looking forward to your success, real financial security and happiness. You can do it! Make it happen! Have a prosperous year! If you have any questions feel free to call me personally only between the hours of 9am- 5pm California time. If I am on my cellular phone and you get my voice mail leave your name, phone (twice & slow) and best time to reach you (do not leave me details I will discuss your situation when I call you).

Sincerely,


Rick Brown
(760) 419-9004
(PST) 9am-5pm Tues.-Sat.

Creative Finance - Robert G Allen

UNIT FIVE: CREATIVE FINANCE
General Considerations 1
The Major Factors Of Creative Finance 4
At What Price? 4
Using Whose Financial Resources To Buy? 5
How Soft Or Hard Are The "Other People" Involved? 5
With What Size Of Down Payment? 6
When Is The Down Payment Due? 6
In What Form Of Consideration? 7
At What Rate Of Interest On The Unpaid Balance? 7
For What Repayment Terms? 8
Creative Finance Score Card 8
A Hypothetical Case Study 9
Tricks Of The Trade 12
The Big Secret 13
Creative Footnotes 14
Six Universal Creative Finance Cookie Cutters 15
The Ultimate Paper Out 15
Blanket Mortgage 17
The Second Mortgage Crank 18
Wrap-Around Mortgage 21
Creating Paper 23
Lease Option 24
Assignments 25
Practicum 26
Chart: Situation Analysis Matrix 27

UNIT FIVE CREATIVE FINANCE
5.1 GENERAL CONSIDERATIONS
What really separates the sheep from the goats in real estate investing is the skill of putting financial deals together in creative ways. The nickname for this skill is "creative finance."


The term "creative finance" has been used so often in so many different contexts that it has taken on the aura of a cliché. Our purpose here is to attempt to define the term in practical, down-to-earth ways that will demystify what is, after all, a very learnable skill, i.e., putting profitable deals together so that everyone wins.

Ask the man on the street what "creative finance" means and you will get a variety of answers:

clever ways of coming up with cash
innovative solutions for bridging the gap in making deals
"cookie cutter" formulas that can be repeated over and over again in order to buy and sell assets successfully
sneaky deals à la Donald Trump, etc.

Let us take a very different approach to defining "creative finance," i.e., not as a fixed action or thing, but rather in terms of ranges, or rather a series of points moving along a range of options that relate to certain financing issues.

AN ILLUSTRATION

Let us take one of those issues in order to illustrate what we mean. If we want to purchase an asset or a property using the time-honored approach of "cash on the barrel," then we settle on a price with the seller and reach into our pocket and give him/her the agreed-upon value in the form of currency.

That enables us to walk away with the property or asset and call it our own. We are happy, assuming the thing we have purchased is what the owner has represented it to be; and the owner is happy because he has his money.

Creative finance? Not in the least. This is the most ordinary, mainstream, garden-variety financing in the world. However, what happens if we don't have the money it will take to buy the property or asset, but still really want it?

Then we must turn to our creativity in order to consummate the deal. Where will we get the money from? Suppose we have a friend with plenty of money and a willingness to share with us the thing we want to buy. If we now bring our friend to the negotiations and say to the seller:

"Mr. Seller, I want to purchase your property for the price we have agreed upon, and I have a friend here who will put up the money."

Will the seller object to that? Not if the money is bona fide currency. Thus you and your friend can walk off with the property or asset, share it according to your arrangement, and everyone is happy.

Especially you, because you didn't put up a dime—and still get to use the property. You have just used creative finance to close a deal. The issue here is one of several that go to define "creative finance."

In this case we are asking, "Who will put up the finances?" In our example, your partner put up all the financial resources. But it is possible that you could have put up some and he/she could have put up some--a combination of shared investment.

Maybe you put up half and your partner puts up half.

Or maybe you put up a fourth and your partner puts up three-fourths.

Or maybe you put up 37.681 per cent and your partner puts up 62.319 per cent.

Whatever!

It's a matter of mutual agreement. That kind of arrangement makes it clear that we are talking about a range of options all relating the issue of who puts up the finances to close the deal. From your perspective, the range covers all the possibilities from your putting up all the consideration (hardly creative) to your putting up none of the consideration (highly creative)--plus every possible combination in between.

We can define "creative finance" as a financing arrangement in which the maximum share of the invested finances comes from other people rather than from yourself. The more you can induce others to pay, the more creative the deal. The better you are at structuring financial arrangements in which your input is minimized and the use of other people's money is maximized, in the context of everyone winning, the more "creative" you are at financing.

5.2 THE MAJOR FACTORS OF CREATIVE FINANCE
There are at least seven other major factors that figure into the process of creative financing. Here is a listing of these issues, including the issue of OPM (Other People's Money) that we have just discussed. Each of these issues generates a range of options that can serve to define more fully the nature of creative finance from the standpoint of the results it brings:

1. AT WHAT PRICE?
Range: from high above the market to high below the market
Commentary: all other things being equal, you are going to be looking for a price as far below the market as possible. It doesn't take a lot of additional creativity in a deal if you can get it at 30% or 40% below the market. That may well be "creative" enough, because you pick up a big chunk of equity as the outset, before anything
else happens.

USING WHOSE FINANCIAL RESOURCES TO BUY?
Range: from our own resources to other people's resources
Commentary: as we have already explained, if there must be money put into a deal, then let it be someone else's money. This is especially true if you don't have any money! Sometimes circumstances constrain you to be creative in this sense. A lot of deals are creative because they have to be!

HOW SOFT OR HARD ARE THE "OTHER PEOPLE" INVOLVED?
Range: from bankers to partners to sellers, i.e., from hard to soft
Commentary: it's one thing to depend on other people's money; it's another to make sure you are dealing with the right kind of "other people." The terms "hard" and "soft" are ways to characterize "other people" by how tough they are with the terms of the deal. Typically bankers and institutional lenders are more conservative and demanding when it comes to the terms of their involvement. They want to check you out and force you to pass through their fine qualifications filter before they will let you have their money. They want to charge you as high an interest rate as possible (especially the "finance institutions" of the type that specialize in second-mortgages), and they watch you like a hawk to make sure that you pay every penny back on time. That's why they are characterized as "hard money" lenders. Alternately, sellers can be "soft," i.e., they might be willing to play banker for you without any scrutiny, credit checks, or behind-the-scenes detective work. The more anxious the seller is to sell, the more willing he/she might be to carry back a portion of the equity in the form of a note. That's why sellers are at the high end of the creativity scale. Generally the more creative
the investor, the more he/she will push for seller involvement with the financing.
Partners occupy a somewhat intermediate position on this scale. They have to be courted, like the hard-money people, but they may be more flexible and willing to deal by qualifying the deal more than the person. Still, they are not as soft as the seller, because they are going to want their pound of flesh in a timely manner. They are going to watch the pot boil to make sure they get their just dues.

WITH WHAT SIZE OF DOWN PAYMENT?
Range: from 100% of the value up to 0% of the value Commentary: with creative finance you throw out the traditional down-payment rules and negotiate what will get the deal done in a win-win fashion. Naturally, you have to do this in the context of the numbers, since "nothing down" deals are a dime a dozen if you are willing to buy into "alligators" with high negative cash flows. The trick is to get away with the minimum input of capital and still have positive cash flow.

Some people with unlimited resources or well-heeled partners will argue that the best way is to pay all cash and force high front-end discounts. They give up down payment creativity in favor of discount creativity. You can't argue with them--unless you are broke and have to fall back on low-down deals in order to survive.
We'll have more to say about this below.

WHEN IS THE DOWN PAYMENT DUE?
Range: from way before the deal is closed to way after the deal is closed Commentary: all other things being equal, you may want to put off the inevitable as long as possible. You may even want to take the down payment and spread it out over the initial period after the deal is closed so

that it never bites you too hard--assuming the seller will let you get away with it. Creative deals sometimes have to be structured around down-payment flexibility. The trick is to realize that there can be flexibility in such cases. Sometimes all you need to do is ask. In the "asking" is the creative energy!

IN WHAT FORM OF CONSIDERATION?
Range: from cash to property to secured paper to unsecured paper
Commentary: the further away from cash, the more creative. What if your seller is willing to take some personal property in lieu of cash? What if he/she won't take property but will take a note secured by property (such as real estate)? What if the seller doesn't insist on the note being secured, and just takes a piece of paper
with your promise on it (i.e., an unsecured note)? All of these possibilities form a sequence from less creative to more creative. If you don't ask, the assumption is "Give me cash." But if you ask creatively, you can sometimes get away with "murder" and still have a win-win deal.

AT WHAT RATE OF INTEREST ON THE UNPAID BALANCE?
Range: from way above the market to way below the market
Commentary: often this factor is tied in with other creativity factors in the deal. If you don't get your way with one of the other factors, you might insist on forcing the interest rate down (and hence the "creativity" up).
Alternately, if you want to force your hand with one of the other factors, you might choose to yield on the interest-rate factor. This may make you seen to be less creative with respect to it, but you will get even on one or more of the others! More of this later.

FOR WHAT REPAYMENT TERM?
Range: from long-term to short-term
Commentary: all other things being equal, the longer you can postpone the repayment, the better. The reason for this has to do with the time value of money. The longer you have your money in your own clutches, the more you can put it to work for you. The moment you pass it on to the seller, you lose the option of putting it to work for you. Naturally, this has to be counterbalanced against the cost of borrowing it from the seller. In each of these eight ranges, creative finance can be defined as a point along the line defining the range: the further the point moves along the line, the more "creative" the deal you have put together.

5.3 CREATIVE FINANCE SCORE CARD
Let's put our findings in the form of a chart summarizing the eight scales we have used. Let us give our ranges a span of five points for the sake of relative comparison. What we are doing is separating "creative finance" into its constituent parts in order to gain a better understanding in how deals are put together. This is called the analytical approach. Later on we will talk about creative finance in terms of a synthetic approach where we see how combinations of factors add up to optimum results.
Each deal is a little different, with different sets of demands and needs. We are attempting to set up a way to "keep score" in the game of creative finance, to measure the degree of creativity needed in order to put deals together.

A HYPOTHETICAL CASE STUDY
Let us suppose, for example, that you want to purchase a valuable painting and are able to structure an arrangement according to the criteria listed above, with the following details.

How creative is your deal?

1. AT WHAT PRICE?
You are able to negotiate a price that is 50% below the market for the painting in question. Thus, whatever financing source you come up with, you are already 50% ahead of the game. Since 50% below the market can be considered a very unusual opportunity, your creativity shoots to the top of the range in this case.

2. USING WHOSE FINANCIAL RESOURCES TO BUY?
You are able to set up an arrangement where little or none of your own resources are to be put into the deal, hence your creativity along this scale also rises to a point close to the top.

3. HOW HARD OR SOFT ARE THE "OTHER PEOPLE" INVOLVED?
Now, who your participating partner is in the deal is very important from the standpoint of creativity. Let us take the position that the most desirable partner is the seller himself; the next most desirable partner would be one or more non-institutional investors or participants within your circle of acquaintance; and the least desirable source would consist of the hard-money lenders. The reasons for this judgment are fairly obvious: sellers who serve as bankers usually don't require involved credit checks or approvals by august high-level committees; non-institutional partners, while usually requiring a good piece of the action are still easier to work with than the hard-money lenders. Let us suppose in our illustration that you are able to
induce the seller himself to finance the purchase of the painting. Thus your "creativity" stock rises upward along the vertical line toward the top, since this kind of financial arrangement is perhaps the least "mainstream" option you have.

4. WITH WHAT SIZE OF DOWN PAYMENT?
Let us suppose your seller insists on at least 5% down, despite all of your creative badgering. Your creativity in this regard does not go completely to the top, but at least it approaches maximum.

5. WHEN IS THE DOWN PAYMENT DUE?
The good news is that you ask your seller to allow you to delay payment of your 5% down payment for six months--and much to your surprise he agrees! This is not "much later," as indicated on the payment-due scale, but at least it carries you upward toward the top.

6. IN WHAT FORM OF CONSIDERATION?
You talk your seller into letting you take care of your payment obligation in the form of an unsecured note that provides for monthly payments. Thus your "creativity" in this regard is high.

7. AT WHAT RATE OF INTEREST ON THE UNPAID BALANCE?
You work hard to come to terms on this issue, but find that your seller simply won't go lower than market rate. Your creativity in this regard is only moderate, but at least you got him to come off his initial insistence that you pay him several points above the market due to the fact that you were giving him an unsecured note.

8. FOR WHAT REPAYMENT TERM?
When it came to this issue, you were somewhat embarrassed to ask your seller for ten years to service the note. Much to your amazement, he accepted. Thus your creativity on this scale rises to the top.

Now, if we take our hypothetical example and assign a score for each of these eight ranges of creativity, you can come up with a chart From your chart it is apparent that your deal was, on the whole, very creative indeed.

You bought a valuable asset at 50% below the market
(1) without a dime of your own money
(2). In fact your "banker" was the seller himself
(3), who was satisfied with only a modest down payment
(4) delayed for a full six months
(5). Your payment was to be in the form of an unsecured note
(6) no higher than market rates
(7), with a long term for fulfillment

Not bad! If we assigned an actual comparative score to this transaction, then you would have scored 5, 5, 5, 4.5, 4, 5, 3, 5 for a total of 36.5 out of a possible 40 points. This works out to 91.3%--which would give you an "A" in a creative financing course at college.

Compare this with the fellow who might have walked in with a pocket full of money and simply plunked down the equivalent of the full market price for the painting. He would flunk our course outright!

5.4 TRICKS OF THE TRADE

"But," you say, "is there not something missing? Where are the neat little tricks and innovative twists that I often associate with so-called 'creative financing'? Where are the brilliant flashes of intuition that get over the hurdles and around the obstacles?"

Good point. Our little illustration gives only the highlights and doesn't let us in on any of the behind-the-scenes intrigue that we like to imagine as the fabric of creative finance. Okay, have it your way. Let us fantasize a little and hypothesize what might have contributed to the creative facilitation of this deal.

What will surprise you is that you really only need one major "trick" to make creative finance work in your favor, the trick of tradeoff. In other words, most of your bargaining power comes from within our range in the form of yielding on some issues in order to gain on others that may be more important to you. Your seller is really not fully aware of your tolerance levels with respect to the eight issues included in our lineup. He/she does not know which of the issues is critically important to you on the basis of your circumstances.

For example, what if you are flat broke and therefore you must have your way with respect to the second issue (OPM). You simply have no choice but to look to the resources of others to swing the deal. Furthermore, what if you have poor credit and no partners to step in from behind the scenes, and thus the OPM you must turn to is the seller himself. How can you assure yourself that the seller will finance the deal?
Easy. You give up something in one of the other categories of less importance to you than that. For example, you might yield on price, even giving the seller above-market consideration for the asset you are purchasing. Or you might give the seller a higher interest rate that you would normally tolerate.

Alternately, you might yield on the form of payment. For example, if the seller demands some form of down payment so that your neck is on the line, but you don't have cash to give him/her, then you might consider property, i.e., personal property instead. You could give up a car, boat, horse, or whatever else you might have that would satisfy the need. Moreover, if you are offering a secured note as the instrument of payment for the obligation, you could increase the security on the note in exchange for the OPM/Seller Finance issue.

For example, if it is real estate you are purchasing, you could secure the note not only with the subject property as collateral, but with other properties you might already own. The technical term for this creative technique is "the blanket mortgage," because it covers two or more properties at once and thus increased the collateral of the seller and therefore the trust and tolerance factor.

To use a further example, suppose you have plenty of your own money to use in a deal, or at least access to plenty of money through partners, but you are very keen on price. In that case, you might yield on the second and third categories and focus on what is more important to you: price. Your hot button is to acquire the asset at a price that is far below the market so that you will be picking up great amounts of equity right from the start. Here you can yield on some other issue, such as the form of payment, in order to get what you want.

The name of this game is "cash talks." Rather than exerting your creative muscle to pay in the form of non-cash resources, carry-back notes, etc., you simply reach in your pocket (or your partner's pocket) and pull out cash. But you insist on lowering the price in exchange for giving up that cash in the deal.

5.5 THE BIG SECRET
By now you know the big secret about creative finance: i.e., there is no big secret. It really amounts to mixing and matching your options within the range grid we have outlined.

Creative finance means being creative in how you mix these options in keeping with your own circumstances.

Your motto is: "You win some battles and you lose some battles, but you always win the war."

In other words, you are purposely uncreative in some categories in order to be creative over all and bring home the bacon.

Does that make sense?

5.6 CREATIVE FOOTNOTES
Now, having covered that point, we hasten to add that the whole world of creative finance is not covered by our simple chart. There is much room for your own creative thoughts and strategies outside this chart. You will learn how to add other categories and tricks that harmonize with your own style and needs.

For example, what if your interest in not to acquire an asset immediately but only to get control of it for a time. Then your creativity will suggest to you getting an "option" on the asset. In real estate or business acquisition, it is possible to tie up an asset with an option that gives you a chance either to find another buyer who will give you consideration for your option, or to find the financing to buy the property outright. In any case, the proper instrument in this case is the option instrument, or the lease-option. You don't purchase for the time being, you just control. Furthermore, you will become very adept at facilitating creative deals by offering things that are out of the ordinary.

If security is a big thing with a given seller whom you are approaching on a seller-carry-back basis, then it might occur to you to take out an insurance policy in the name of the seller in order to add security to the deal. If you are short on cash and personal property to put into a deal, then you might use your credit to buy something on time that the seller wants as part of the consideration. Or you might take over an obligation of the seller on another of his assets and shift the credit back to the asset you are interested in buying. If you don't want to refinance a target property as part of a purchase, you can use a "wraparound" mortgage or contract instrument to purchase it, etc.

Where do such facilitative ideas come from? Your creative brain--encouraged by the circumstances you find yourself in. Often the choice of trade-off is dictated by your circumstances--thus there is no creativity about such choices. You take a certain approach because you must take it. The creativity comes in mixing and matching the trade-off parameters.

In fact, virtually all of the so-called "cookie cutter" techniques are rooted in our creative finance grid, sweetened by small creative gestures along the way to grease the skids. In our next section, we'll turn to some of those cookie cutter techniques to show you how they can be used.

5.7 SIX UNIVERSAL CREATIVE FINANCE COOKIE CUTTERS
Let us discuss six of the "classic" creative finance techniques that everyone needs to have in his/her arsenal of strategies. As we discuss these techniques, we will refer to our creative finance chart to see where a given technique fits in.

5.71 THE ULTIMATE PAPER OUT
Every investor has a secret desire to trot into a deal and trot out with a valuable asset without putting anything down.

Naturally, in the case of an income-producing asset, this desire includes no negative cash flow Are such deals possible? Yes. All the time. Ask any veteran who has used his benefits to purchase a house for nothing down (here the "negative" cash flow is tolerable because it amounts to rent).
Such deals are even possible for the real estate investor--if he/she is willing to look around to find the ultimately flexible seller.

Let's suppose we can find a flexible seller who is willing to carry back paper on a property in order to facilitate the sale. He is not willing to discount the price, so we cannot be creative in that regard. But he is willing to take on the role of banker.
Why would a seller be flexible in this regard? Perhaps his property has been on the market for a long time and he is weary of the hassle of trying to get it sold. Perhaps he has a large portfolio and needs to reduce a tax burden. Perhaps he is just a philanthropic old gentlemen who wants to help us out!

For whatever reason, he is willing to carry back. If the carry-back is for 100% of the seller's equity, then we have a so-called classic "Ultimate Paper Out." Very likely the seller will demand and get his full price. Possibly he will also insist on a fairly high interest rate. And perhaps he will want a balloon payment in the short term (three to five years). You may even have to "sweeten" the deal by offering a blanket mortgage to increase the security for a time. Perhaps you will have to purchase an insurance policy on your own life, with the seller as beneficiary, in order to get the deal closed. All of these inducements and sweeteners don't really matter to you. You do what it takes to close the deal and take advantage of the one creative factor that really matters to you: nothing down.

Naturally, you will have done your homework by assembling good evidence that the property will likely hold its value or even appreciate in time to come in and solve the balloon problem. Naturally you will have looked into the bottom line to assure yourself that you will have positive cash flow despite the 100% financing on the property.

On your creativity chart for the Ultimate Paper Out, we will note that the price may be at the market level or even somewhat above (score 3 or lower).

Who pays will be OPM (other people's money--score 1).
Hard or soft will be the seller (score 1).
How much down will be zero (score 1).
When due will be a moot point in this case (there is no day of reckoning--score 1)!. Form of pay will be secured note (score 4).
The interest rate will probably be at market levels or somewhat higher (score 3).
And the term will likely be intermediate and perhaps somewhat shorter (score 3).

5.72 BLANKET MORTGAGE
In the "Ultimate Paper Out" we mentioned the possibility of cementing the deal with a "Blanket Mortgage."

Let's go back and analyze what that means in terms of our creativity grid. The Blanket Mortgage is really an inducement technique that falls under the "Form Of Payment" column in our creativity chart. The logic of it is quite simple, especially in a nothing down deal.

The seller in a 100% carry-back situation will say to himself: "Why should I let this investor take over my property with nothing down? If his head is not on the block, then he may not follow through. With nothing invested, he has nothing to lose."

There is a compelling logic to this conclusion. A nothing down investor may really not have much to lose in just walking away from a deal that isn't going his way. Hence security becomes an issue for the seller. How can you increase the seller's security and still take advantage of a nothing down deal?

The answer has to do with the nature of a secured note. A mortgage is really a combination of two interlocking instruments: a promissory note and a collateral agreement. In essence, the note memorializes your promise to pay a certain sum of money according to agreed-upon terms. The collateral agreement pledges something of value to back up your promise. If you don't perform on the note as promised, then you allow the holder of the note to take over the property (collateral) you have pledged.

In most real estate transactions, the collateral is in fact the subject property itself that is being purchased. If the seller turns over a property to you then you give back a trust deed note (or mortgage note) plus a security agreement pledging the subject property as collateral.

But what if you pledged more than the subject property? What if you secured your note with the subject property plus something else of value, such as another property you own? If you offer more security in this way then you are setting up a "Blanket Mortgage" or "Blanket Trust Deed" situation.

Why would you want to do this? To help the seller overcome his security doubts in a nothing-down situation. The Blanket Mortgage is a financing technique that is analogous to a "security blanket" for the seller.

You say to him: "I'll give you a security blanket if you give me a nothing down deal."
Naturally you will want to include in your Blanket Mortgage Agreement a provision to release the second property as collateral in the event you perform on your agreement for a specified period of time. Let's say if you make all of your payments for a year in a timely way and keep the property in good condition then the additional collateral can be released. In a year's time, the value of the subject property may well have increased in value anyway, thus increasing the seller's security.

The "Blanket Mortgage" creativity chart will look just like the chart for the "Ultimate Paper Out." The variation is that you will be using an additional property as collateral for the secured note.

5.73 SECOND MORTGAGE CRANK
The term "crank" is an old creative finance term that implies pulling money out of a property at closing, or "cranking" money out of a property in order to close a deal. In order to crank money in this way, there must be considerable equity in a property. In fact, the "Second Mortgage Crank" can only work well if the financing on a property is 25% or less. Where there is 75% equity in a property, the parties to a transaction can use their creativity to arrange a win-win deal.

How does it work?
What is important to the seller is to get a lot of his equity converted to cash. What is important to the buyer is to get into the deal with little or none of his own money. Thus the buyer will probably have to yield on price and terms in order to get "creative" with the source of the funds to buy the property.

There are two variations:

A. SELLER REFINANCE
In this case, the seller, in order to facilitate the sale, agrees to refinance the property himself with around a 75% - 80% new loan, pay off the existing loan (which should not exceed 25% of the value of the property), and take the balance of the refinance proceeds in the form of cash. The buyer then gives the seller a second trust deed (or second mortgage in some states) for the remaining portion of the equity. Thus the buyer gets in for nothing down.

Again, there may need to be inducements like a "Blanket Mortgage" for the carry back portion of the deal, or an insurance policy with the seller as beneficiary. Or the price of the property or the interest rate on the second may need to be generous for the seller.
The key is for the buyer to be creative where it counts.

Why would a seller go to the trouble to refinance the property himself and "cranking" out his own proceeds? Perhaps he has had difficulty selling the property and needs to do something special to get rid of it. Perhaps he is tempted by a price that is generous, or perhaps the buyer pays back a bonus when the second is paid off. With some clever negotiating, such deals can be put together.

B. THE "CLASSIC" SECOND MORTGAGE CRANK
With this variation, the buyer takes out a new loan on the property, pays off the existing loan, and gives the proceeds to the seller. The down payment (which is always essential in a new hard-money loan that is part of a purchase) comes in the form of a note that the buyer executes in favor of the seller, using another property as collateral. In other words, there is no second trust deed (or second mortgage) on the subject property; rather, the buyer has paid for the remaining equity in the form of a note--which does indeed have value.

The seller does indeed receive consideration for his remaining equity, but it is not in the form of cash. It is in the form of a note secured by another property. Thus there is no secondary financing on the subject property--just the new first trust deed (or mortgage).

What is the catch?
No catch. Just the need to find a lender that will be willing to arrange for such a transaction. What if the lender wants proof that the down payment part of the transaction has really come out of the buyer's pocket. In that case, the lender may require the seller to sign a "verification of deposit" stating that the seller has received consideration for his equity in the form of an exchange. If the lender is aware of the kind of consideration involved, perhaps he will require that the note by appraised in order to demonstrate that the requisite value in there. It stands to reason that lenders will be more amenable to this kind of creative financing in times when capital
is plentiful.

In any case, the money needed to complete the deal has been "cranked" out of the property (in the form of the proceeds of the new loan less the payoff for the old loan). Actually, the remaining proceeds to complete the deal have also been "cranked" out of the secondary property in the form of the exchange. It's like a double crank. This is the classic form of the Second Mortgage Crank because the seller does not need to do anything except agree to a highly creative deal.

Once more, the buyer is likely to yield on the factors of price, interest rates, terms, etc., in order to get the advantage concerning the source of the capital. Thus the creativity is selective.

If you do a chart on, the "Second Mortgage Crank" you will note that the price will probably be at market level or higher (score 3).
Who pays will be OPM (score 5).
Hard or soft is a mixed bag: hard for the bank (score 1) and soft for the seller (score 5).
The average will fall in the middle, so score 3 for this factor.
How much down will hopefully be zero (score 1).
When due--score 1 again because without any down payment, this point is moot.
Form of pay is a secured note (mortgage or trust deed--score 4).
Interest rate will probably be at market level or higher (score 3).
The term will probably be intermediate or longer (score 3).

5.74 WRAP-AROUND MORTGAGE
What happens during tight-money times when the poor old buyer cannot qualify for a loan in order to buy a property?
There is a powerful variation on the seller-carry back that works well when the underlying loan has a relatively low interest rate and when that loan is assumable.
Let's say the seller has a $100,000 property with a $60,000 mortgage at 8%. The seller's equity is therefore $40,000. You want to buy this property but cannot qualify for a new loan to buy the seller out. What can you do?

You can give the seller a new mortgage that incorporates the old and a large part of the seller's equity.
Let's say you can come up with $10,000 down in cash and give the seller a new mortgage for $90,000 at 10% interest. This new mortgage "wraps" around the old underlying mortgage of $50,000. There is a $40,000 portion of the new mortgage that
covers the rest of the seller's equity. We refer to this financing instrument as a "Wrap-Around Mortgage" or "All-Inclusive Trust Deed (AITD)."

Why would a seller carry back such a mortgage? One reason is that he is getting 10% interest not only on the $40,000 portion, but also on the underlying $50,000 portion as well. Thus he gets a 2% "spread" on the underlying portion—which he can put into his pocket until that underlying mortgage has been paid off. Alternately, you may perhaps agree to terms that will require you to pay off the new mortgage before the underlying mortgage comes due. In that case, the proceeds you deliver will pay off the new mortgage and old mortgage at the same time.

Thus you have yielded concerning the interest rate, and possibly the time span, but have gained in the area that is important to you: who comes up with the money. True, you probably have to come up with a down payment, but the rest of the equity is financed by the seller himself. And perhaps you can negotiate a price that is below the market. These factors make this deal creative.
How do we score this technique on your creativity chart?
Hopefully the price can be somewhat below the market (score 4).
Who Pays? Essentially the seller carries back for much of the equity, so score 4 for this part. However, you may have to put something down (score 1).

The average will be around 2.5 on the chart for his factor.
Hard or soft (score 5).
How much down (score perhaps 4 since you may have to put some money down on the deal).
When due? Probably at close (score 3).
Form of pay? This is a blend of cash for the down payment (score 1) and secured carry back (score 4).
The average will be around 2.5 for this factor.
The interest rate will likely be at the market level (maybe somewhat higher to induce
the sale--score at least 3).
The term will likely be intermediate (score 3).

5.75 CREATING PAPER
Few people realize that things can be bought with "paper," but it is true. If you start to build up a portfolio of real estate properties with growing equities, you can begin to take advantage of these assets by using them in cash-less deals.

It works like this: if you find a property that you would like to acquire, you can offer the seller a note as down payment, in lieu of cash. The note can be secured by the equity in one of your other properties.

How do you create paper? You sit down at a typewriter and write out a promissory note. Then you back it up with a security agreement that pledges your real estate as
collateral. If you prefer, a title company or attorney can whip this kind of instrument up in no time.

Then you take your note over to the seller and say: "I want your property, and here is a note as down payment."

Naturally, the terms of the payments on the note will have to be worked out, just as with any note. And you will have to perform on the note, or else the seller is entitled to take over the collateral for the note.

But the beauty of creating and using paper in this way is that it permits you to buy property without cash (or with less cash). And you can put your portfolio to work while your equities are growing. Furthermore, the subject property is not encumbered with any carry-back financing, thus leaving you free, if you choose, to refinance it, and pull out money for other purposes.

Why would a seller accept a note in lieu of cash?
Not all sellers will do this. But an anxious seller, or one who is used to creative financing techniques, might be most willing to engage in this kind of deal-making. It is better to pick up a performing note than not to sell the property at all.

Now you may have to be generous with the price and terms in a paper deal. But you will have your way concerning the form of payment. Thus your creativity is selective where it counts.

How will you score this technique? Your price will likely be around the market level (score 3).
Who pays? In this case you do (score 1);
however, you are the softest form of revenue (hence score 5 for hard or soft). Score 4 for down payment.
When due? At closing, hence score 3. The form of payment is a secured note (score 4). The interest rate will likely be around the market rate or higher (score at best 3). The term will likely be intermediate (score 3).

5.76 LEASE OPTION
A powerful way to have your cake and eat it, too, is to get control of a property through a Lease With An Option To Purchase.

This is using your "creativity" without even purchasing anything except the right to purchase. With the Lease Option you can make use of the subject property under the terms specified in the agreement, plus you have the right to buy the property at a certain price within a certain time frame.

Typically you must pay something for the option (anywhere from a few hundred to a few thousand dollars); however, a portion of the monthly rental fee can be applied to
the eventual down payment or purchase price. Thus a lease option is almost like a purchase where the down payment is paid over time. Moreover, the prospective buyer will want to lock in a price that will be advantageous at the time the option is due.
It is a gamble, of course, but by locking in the price for one, two, or three years (whatever the term of the option is), he might just be able to get the property at a good discount when the time comes. This would be analogous to a "below market"

deal when the purchase goes through.

Why would an owner agree to a Lease Option?

It could be that he has had trouble selling it and thus wants to attract a larger prospective audience. Certainly a lease option will make his management burden lighter since the tenant will want to treat the property with the respect due to a future
acquisition. The seller also retains the tax advantages of ownership until the option is exercised and the title passes to the new owner. Plus the option money is not taxable until the option is exercised.

All in all, the Lease Option can be good for both parties involved.

Naturally the greatest advantage for the prospective buyer is that he can control the property without having to come up with much cash.

5.8 ASSIGNMENTS

1. Define "Creative Finance."

2. What is the "secret" to Creative Finance?

3. Using your own Creative Finance Score Card, chart out the following techniques:

Ultimate Paper Out

Second Mortgage Crank

Wrap Around Mortgage

Creating Paper

3. What is a "Blanket Mortgage" and when is it useful to include in a deal?

4. In which kinds of situations is the "Second Mortgage Crank" most viable?

5. What are the benefits to the "Lease Option" technique for both buyer and seller?



6. What is the greatest liability with a pure "nothing down" technique?

PRACTICUM
Contact at least ten sellers and negotiate a financing solution for each property being offered. Use the mix and match approach to arrive at a viable solution.

The "Situation Analysis Matrix" Chart included on the next page may assist you to identify the creative finance techniques that relate most to the circumstances at hand.

SITUATION ANALYSIS MATRIX
SIX UNIVERSAL CREATIVE FINANCE COOKIE CUTTERS AND WHEN TO USE THEM
1. The Ultimate Paper Out
2. Blanket Mortgage
3. The Second Mortgage Crank
4. Wrap-Around Mortgage
5. Creating Paper
6. Lease Option

CATEGORIES
BUYER
SELLER
PROPERTY

SITUATION AT HAND
You have good credit (or access to it) but no cash right now.
You have poor credit.
You wish to avoid credit checks, qualifying, and closing costs.
You wish to put down little or no money of your own.
You have absolutely no money to put down.
You have cash or inheritances to invest.
You need more a little more down payment to make it work.
You own property and want to generate cash down payments.
You have no property but wish to generate down payments.
You need to solve a negative cash flow problem.
You need to buy a home to live in but have no cash.
You have no equity at all.
You have a weak financial statement.
You have dead equities that you want to put to use.
You have real estate equities to use in transactions.
You want to use your equities without selling or refinancing.
You want to pyramid your assets into bigger properties.
You want to sell without incurring tax liabilities now.
You have an especially keen market sense.
Seller needs cash down at closing.
Seller with low mortgage needs much of equity in cash.
Seller mostly interested in monthly payments.
Seller doesn't need a lot of cash but wants more yield.
Seller will use second-trust note in transaction.
Seller is security conscious and suspicious of creative deals.
Seller is approaching retirement.
Seller must close quickly.
Seller would like to avoid closing costs.
Seller would like to avoid immediate tax liability.
Property lends itself to fix up.
Property is free and clear.
Property has low mortgage, high equity.
Property is assumable (VA, FHA, contracts, etc.).
Property is under market, discounted
Property rents are below market.
Property is listed with real estate agent.
Property is offered during "loose "market.
Property is offered during "tight" market