Rolling Equity - Posted by John Behle
Posted by John Behle on April 11, 2000 at 11:54:42:
Creating a note can happen in a sale as Michael mentioned or you can create a note to sell, trade, etc. It is as easy as putting the form into a typewriter or your computer. I would recommend a title company the first time or two.
As far as creating a note specifically to sell it, you have a challenge there. Most “National” buyers and brokers shy away from notes of that type. A local buyer or investor could be interested, but you would need to find one first and give them a say in how the deal is created.
When I was first into real estate, I began creating notes on property equities. I would create a note on my equity in property “A” to buy property “B” - then create a note on my equity in property “B” to buy property “C”, etc. I called it “Rolling Equity”.
Sometimes the seller of the property that I was giving a note wanted or needed more cash and I began finding buyers for my notes. I would create a note to the seller of the property for the purchase of his property and he would sell the note to a note investor. I found it a great way to buy properties.
One of my strategies was an ad that said:
“FULL PRICE”
I will give you full price for
your home if you will sell on
flexible terms.
The first question was usually "What are flexible terms and I would answer that I needed a $1000 discount off of the price (fair market value) for every thousand dollars cash I put into the property.
I found that that way I could easily create a note and discount it, for as much as 50% to get the cash I needed. So, if the seller needed 10k cash, I could create and sell as much as a 20k note. I would make sure it had a decent LTV ratio through the technique of “Create a second and a third and sell the second” - so the note being sold was in a second position with a decent LTV ratio.
I got to know some of the note investors quite well and they intrigued me. It didn’t seem to make any sense to me that they bought notes. I thought they didn’t know enough about real estate. What I found out is they were total pros in real estate and I just didn’t know enough about note investment.