Question for John Behle - Posted by Roni

Posted by John Behle on June 06, 1999 at 17:37:52:

I’ve never written any kind of course and only a couple articles. One is posted here and I’m not sure where the other is at.

For a while I held the houses as rentals, til I decided “Tenants and Toilets” wasn’t my favorite game. Actually, if I hadn’t discovered real estate paper, I would have probably just kept at it.

Somewhat by accident I had a couple properties I sold off on “wraps” and ended up with some great cash flow. I looked at one particular triplex that I had learned to think of as the “Triplex from Hell”. I think it was on “ELM Street” (my nightmare on Elm street).

I had exchanged into the property - primarily because the other side threw in some cash and I wanted the cash. He received two of my best SFH rentals and I received his property with “potential”.

I had a horrible negative cash flow, repairs and some very lousy “inherited” tenants. Once I sold the property, for the first time I had a cash flow and no calls at 3:00 in the morning. At about that point and with some others I had sold on contract, I looked and said “Hey, I like this better”. So, my strategy became primarily to buy, sell, trade and finance.

Most of the properties we would have 100% or better financing through seller financing, private financing and mortgage companies. We ended up with one mortgage company loan officer solely devoted to our business.

So, there was very little if any cash in the properties and they were sold at higher prices or rates to create a cash flow and we moved on to the next. Once we started turning the houses, and using real estate agents, we kicked it up to a million a month in property.

I learned to like the cash flows more and more and quickly found it easier to just build a portfolio buying existing paper.

As you mention, if values go down, sometimes those with buy and hold strategies end up with declining and even negative equities and declining cash flow.

With turning properties to create paper or buying existing paper, the cash flows remain constant. I handle the interest rate fluctations and consequent fluctations in the yields buy tying in long term capital for the funding and keeping my cash liquid. So, I buy a note at 17% and borrow at 13%. I’m locked in to a 4% spread no matter what happens. If interest rates go down, I still have my 17% yield and I can lower my cost of capital from the 13% to maybe 9%.

Plus, “refunding” happens and there is a windfall yield enhancement. I’m paid off early - at face value - as people refinance. That works best if you are into the paper at a discount, which is the best way to go anyway. There is a major difference between discounted paper and hard money loans. There are safety and other yield factors also.

Question for John Behle - Posted by Roni

Posted by Roni on June 04, 1999 at 20:06:03:

Hi John,

I read in one of your previous posts that you ran the following ad to locate sellers:

“Full Price (24pt Bold Text)
We will give you full price for your property if you will sell to us on flexible terms.”

Could you explain (or direct me where to find more info) on how this works?

In that same post, you also mentioned your articles entitled “A Million a Month” and “How to Pay Full Price and Profit”.

I’ve read them both, but am confused as to how you’ve benefitted from the ad. Who responded? What was your first course of action?

The million dollar ad - Posted by John Behle

Posted by John Behle on June 05, 1999 at 16:41:37:

I bought over a million dollars worth of property in the first three months of running that ad. The first question was usually “What are flexible terms?” and my response is “Well, that means little or nothing down at market value. If we need to put cash into the deal, we need a thousand dollars discount off of the price for every thousand dollars we put into it.”

So, if they needed $10,000 cash, then they would discount 10k off of the fair market value. In most cases, I could still structure a nothing down deal by creating a second and a third and selling the second.

The discount from the price gave me the ability to create a note and discount it to give the seller the cash they needed.

Most of the people that responded were quite anxious. Some were in desperate situations. I literally had to have a box of Kleenex close to my desk for when they came into my office.

Of course I couldn’t buy every property or help everybody. I wrestled with the dilemma of their situations and as I mentioned - Desperations. I had to keep re-assuring myself that my offer was better than nothing. I hadn’t gotten them into their situation and as a business, I had to make a profit while helping them - or I wouldn’t be around to help anyone.

Most offers were sight unseen and I didn’t have to cancel too many after inspection. Usually the property, facts and condition were as represented.

Some deals were low down assumptions. Many were contracts and AITD’s. Many involved creating some seller financing and then selling it to a note broker for the cash the seller needed. That was actually my introduction to the note business.

Re: The million dollar ad - Posted by David

Posted by David on June 06, 1999 at 17:20:45:

John: About the “Full Price” ad you ran, do you have any articles, courses, posts, etc., on this technique?

What do you do with the houses after you buy, L/O, sell on a wrap, sell cash to new loan?

If you hold, and market values go down won’t you be the one on the other side of the desk needing a Kleenex?

I imagine the “…full price…” ad would get tons of calls.

This idea sounds quite fascinating, especially now that my area seems to be a sellers market.

Thanks in advance,