Real Estate vs. Discounted Notes - Posted by Senior C

import · October 15, 2003, 2:57pm

Posted by Senior C on October 15, 2003 at 19:34:17:

This forum still amazes me. Thanks Brent. I’ll send you an e-mail shortly.

import · October 15, 2003, 2:57pm

Posted by Senior C on October 15, 2003 at 14:57:02:

I have read some interesting things about discounted notes. First, what is the difference (in short), and second, is there anybody who has done both and has a preference? The idea of just pushing paper and making money is interesting, although I’m a bit energetic so that probably is too boring for me.

Is there some sort of example of making money with discounted notes hidden somewhere?

Thanks in advance.

import · October 15, 2003, 8:38pm

Re: Real Estate vs. Discounted Notes - Posted by Doug Pretorius

Posted by Doug Pretorius on October 15, 2003 at 20:38:23:

Brent’s given you some great advice. So I only have a couple of things to add:

To answer your question about people making money with both and having a preference. John Behle has invested in both real estate and notes, to the tune of millions of dollars per MONTH. He prefers notes.

As Brent touched on. Something to consider is that many of us use notes as part of our investing, without getting into the complications of discounting. We offer notes to sellers to get lower down payments or lower monthly payments, and we offer notes to buyers to generate higher cashflow.

One of the problems with discounted notes is that it’s much harder to find a good one than it is to find a real estate deal. That’s especially true here in Canada, our secondary note industry is very much in its infancy. The solution many people have come to is to create their own notes by selling houses with owner financing (in one form or another).

I’ll give you some very notable examples of investors who are creating other own notes: Lonnie Scruggs, Merle Woolley, John Burley. Each uses vastly different strategies, but in the end they’re accomplishing the same thing.

import · October 15, 2003, 3:22pm

Re: Real Estate vs. Discounted Notes - Posted by Brent_IL

Posted by Brent_IL on October 15, 2003 at 15:22:47:

The on-site Cash Flow forum at http://www.creonline.com/cashflow/wwwboard3/index.html is replete with examples and articles.

import · October 15, 2003, 5:48pm

Re: Real Estate vs. Discounted Notes - Posted by Senior C

Posted by Senior C on October 15, 2003 at 17:48:37:

Thanks Brent. Hey I’ve read many of your posts too. Great job helping others. The only thing with that forum is that the search feature isn’t working for me, and there aren’t nearly as many posts as the Main Forum. Any advice on articles that are on the site?

Thanks.

import · October 15, 2003, 7:23pm

Re: Real Estate vs. Discounted Notes - Posted by Brent_IL

Posted by Brent_IL on October 15, 2003 at 19:23:57:

I would stick with the folks on that forum that do this all of the time. Discounting notes is an easy concept to grasp, but the reality is that it actually more complicated than buying real estate. When you buy a note secured by real estate, you have all of the same considerations that you would in buying the property, but you have the properties of the note itself in addition. Many things affect a note?s negotiability besides the people involved. Legal requirements are strictly enforced. There are many notes that are flawed. Some can be fixed. Some can never be fixed.

Consider. When I give a note to a seller, I copy many of the concessions in the purchase contract onto the note and the securing mortgage. The idea is that the only one that I want the seller discounting to is me. No informed note buyer would ever make an offer on something like that. However, there are new note buyers or note broker wannabe?s who periodically do make offers because I?m asked if I want to exercise my right of first refusal. I decline because, although I?m selective in invoking discounts with the sellers that I?ve negotiated with, I?ll use every discount I?m entitled to with a subsequent payee. If you had been the one who paid cash for the note, you?d have no cash, and a note paying a small fraction of what you anticipated, that couldn?t be sold. Even if you found the greater fool, you would be asked to verify the amounts and frequency of the payments. Now, consider that many notes are cut-and-pasted from other notes. A missing paragraph or sentence in a note could render it non-negotiable. But you bought it anyway intending to broker it.

Notes are very profitable. Many of us also use notes to enhance our purchase offers. But, to repeat, spend some time learning from the experts before you buy. On the upside, as in real estate, much of the due diligence that has to be done can be delegated, if you build those costs into the purchase amount that you are willing to offer for the notes.