Posted by Reg(TX) on December 31, 1998 at 15:34:05:
Philisophical question - Posted by Reg(TX)
Posted by Reg(TX) on December 30, 1998 at 19:56:19:
I have a question about borrowing money to buy a note. What advantage is it (long term) to borrow money to buy the note if you turn around and pay the cash flow to the investor. an example from Johns video is:
N=120 I=10% PV=10,000 PMT=132.15 FV=0 on original note
N=120 I=24% PV= 6,000 PMT=132.15 FV=0 for my purchase
N=120 I=18% PV= 7,334 PMT=132.15 FV=0 on the loan
Now I understand pocketing the spread ($1334) and possibly reinvesting it. But it seems to me that you will never develop any long term cash flow or residual income with this method. This would seem to equal nothing more than getting a paycheck week to week or deal to deal. Which in turn is nothing more than a J.O.B. (Just Over Broke). I know I am missing the adantages (ohter than OPM). would someone please gently enlighten me on what I am missing. I know the second scenario would be to get the loan for the amount of the note and pocket the difference on the (I) and (PMT) ($24.04)which would seem to be more conducive to long term success than the above scenario. What am I missing? The math is not the problem but the concept is.
John the videos a great!
The BIGGEST question in the industry - Posted by John Behle
Posted by John Behle on January 01, 1999 at 10:58:29:
There is a VERY LARGE DIFFERENCE between buying and financing a note and buying and selling.
Here’s a simple example. I buy a $10,000 note for $7000 and sell it for $8000. I make $1000 profit. If I buy the note for $7000 and finance the note for $8000, I still make $1000 profit. Looks the same - but it isn’t.
One difference is taxes. In the buy/sell (B/S) philosophy I have a taxable gain. In the buy/finance approach, it is borrowed money and non taxable.
Another difference is licensing laws. Brokering notes may come under licensing laws in some states where buying for your own account does not.
THE BIGGEST DIFFERENCE is profit.
If the note pays off early in the first (B/S) example, then the investor or institution makes a windfall profit of an extra $2000.
In the buy finance scenario I MAKE THE WINDFALL PROFIT. I receive $10,000 and pay off the $8,000 that I borrowed. My investor that loaned the money also has his/her money back, received a great rate of return, is telling all his/her friends and wants to invest again.
I made 3 times as much as someone “flipping” notes. We all know that the average 30 year note pays off in between 4-7 years. So I buy a long term note at a large discount and it pays off early and my yield skyrockets.
What if I trigger the payoff by offering a discount? The payor owes $10,000 and I entice them to pay off early for $9,000. They save $1,000 and I make an extra $1,000 (not including the referal or brokerage fee from the institution that refinanced them).
This is one tiny note - and only one techniuqe of 117 ways to profit through fixing up and improving paper. We’ll look at more techniques later including trading notes for real estate and how you can continually profit from a financed portfolio of notes. Even notes that are financed 100% through a paper trade can still yield incredible profits.
You Gotta Finish The Tapes - Posted by Marvin Seawood
Posted by Marvin Seawood on December 30, 1998 at 22:10:40:
Reg - We’ll discuss it then. - Marvin
Philosophical…or More Practical? - Posted by MN~Chicago
Posted by MN~Chicago on December 30, 1998 at 20:35:31:
I,too, just finished the video program. If
you were to do one deal per month, as
you describe, you probably would have a
job, even at two deals.
Were you to elevate your thinking somewhat
and run with your imagination, you might
see this in a broader context.
What if you did one of those deals every
week, or two per week? What if you also
did some much larger deals, say a $50,000
or a $100,000 note deal, as well.
Your “job” is beginning to look somewhat
What if you did 20-30 deals and began
amassing a decent sized portfolio for
yourself. What if you took that portfolio
and improved the notes by an average of
25%, beyond what you already made? What if
you improved the portfolio by 35%?
What if you began swapping some of those
discounted notes at face value to purchase
What if you reviewed those tapes again with
a determination to change your focus from
seeing a job to seeing unlimited opportunity?
Sorry for the “what if…” theme, because if
a frog had wings it would fly.
It sounds like you may have missed a few of
the principles and what can be done with
them, and, perhaps you didn’t set any goals.
You are sitting on a gold mine; just keep
digging some more. It’s there.
Best of luck to you.
Re: Philosophical…or More Practical? - Posted by Reg(TX)
Posted by Reg(TX) on December 30, 1998 at 21:09:49:
You give some good advice but Maybe I did not make my question clear. First of all the number of deals or the size of them do not matter. It is the priciple that I am asking about, the size of the note was just used for an example. The principle that I refer to when it comes to a job is that you put in a certain amount of time and you get a paycheck. In order to get paid the next week you put in a certain amount of time and you get paid the next week. each week you spend up to your level of income (no matter if it is Minimum wage or $20,000 per week). The principle is that you trade hours for dollars. in the example I made a deal got paid one time and that was it. in order to make money the next week I have to do another deal. If I continue to do that I can make a lot of money but I will always have to work to make that money, i.e. trading hours for dollars or in other words a J.O.B…
My level of thinking is very delveloped on the subject of trading hours for dollar. As a matter of fact I am an expert at it. My question was looking past the J.O.B. mentality and thinking on the level of being wealthy and having my money someday work for me rather than me having to work for my money! So MN in the future, I will try and be more explicit with my questions so that you don’t again give a perscription before knowing the patients sickness. Improving the notes is something I had not thought of that is some good insight and what I was asking for. Thanks. I will now go and finish the tapes.
Can’t Help You - Posted by MN~Chicago
Posted by MN~Chicago on December 31, 1998 at 14:31:06:
I reread your post and your post to my
response. There is no clarity in either.
Working hours for pay is not a principle,
as I understand the word, but it is a reality.
You need to more clearly define that which
you want. I can only read confusion in
your posts. My response addressed what you
posed. Your second post does nothing to
alter your original question, nor my response.
Your self-professed expertise on the topic
simply escaped detection by me.
I am not looking to prescribe anything to
you. Your biggest battle is with yourself,
not with me or anyone else.
My apologies for imposing a perspective
which apparently misaddressed your
misrepresentation. No need to worry
about a repeat. The patient I see is
not the patient you think.