That technique works for any properties where the seller is willing to take a note for a substantial amount of equity. We look for no more than a 30% total amount of the value of the property in 1) Cash down payment and 2) Existing conventional loans.
Both would most likely need to be in cash. If the loans are “private” they might be able to discount or trade. See the article on “How to Pay Full Price and Profit”.
Keep in mind that the “Paper Trade” technique can work with any asset. You might find someone with a mobile home, car or other personal property that would trade for a note too.
As far as trading deals, you don’t have to wait to build your own portfolio. You might find other local buyers and investors out there that already have a note portfolio that might joint venture some deals or sell you the notes when you need them for a deal.
Occasionally we have more deals on the table than we have notes for at the moment. That is exactly what I do. I contact other note investors (not “broke-brokers”) to buy from them, joint venture or do a collateral rental.
I was reading through Newsgroup II and noticed an answer you had given, to one of the posts, that included what you referred to as hypothecation (http://www.creonline.com/wwwboard2/messages/2726.html). Though I’ve heard of this technique before, I’ve never really understood it. But you were right (in another post),when you said that when it comes to certain note techniques all of the sudden one day it just HITS you right between the eyes and you understand. And that’s just what happened to me today with hypothecation. lol
So in your experience have you noticed that 1.)someone selling a commerical building (say an apartment complex, wanting 20% down and is willing to carry the rest) would be more or less willing to go with this idea when you buy, and if they do 2.)are they more willing to accept a single family home note (or notes) or do they want the same type of collateral (i.e. commercial paper–though Lord only knows why)? Your thoughts or experience are appreciated.
I’ve found where sellers of SFH take commercial notes or even recreational ground. Someone with a commercial property is usually fine or more happy with residential notes.
I just always want to be able to make the argument that the collateral is just as good or better. The negotiations on these deals is the key. I come in “Loaded for Bear” with full packages on the notes and a simplified proposal showing the advantages and possible disadvantages (Ben Franklin “T” form).
Many times the note I want to use as collateral have better LTV’s, are seasoned, have a more desirable form of collateral, etc. I point out that it is triple guaranteed - Me - The payor(s) - and the properties. Sometimes it is still too challenging and complicated for the people involved.
I look for properties where the seller has already made a decision to carry financing or wants to for tax reasons. Using notes as collateral still counts as an “installment sale” if it is structured properly.
I’m going to try it sometime in the future after I have a few notes in my own portfolio. It does sound like it would be a great technique to use for an apartment building that’s for sale here in town currently, if you had the notes. Owner wants 20% down and is willing to carry the rest. That would be the kind of property you say might be a good candidate for this technique, am I correct?