Posted by John Behle on March 02, 2000 at 12:06:11:
Another reason to avoid big institutions. Your best luck is usually with a small bank, credit union, etc. We go to the REO department for the real estate deals. For the personal property deals it will usually be someone totally different.
The best bet is to usually talk to them about buying the asset(s) until you find someone that can take offers in that area. More and more institutions are just getting to the point where they “list” assets. Real estate with agents and sometimes the personal property just goes straight to the auction companies.
Making an offer may be the only way to get started. If I were getting nowhere, I would even consider an offer I with some contingencies or something to at least create a trail to a decision maker. Example, make it subject to inspection and approval of a property (RE, car or other asset) and then drop the offer upon inspection and seek a meeting or to get a proposal to the person at the institution you now have found.
Never done this so understand I’m saying is the way I see this.
I hope to pull off a note trade soon on something I’m working on.
Anyway, you said in your previous post that there was no discount and if banks are used to buying at a discount they would have discounted then.
I disagree 350k cash and a non performing asset(reo).
The reo may have been worth 100k to someone like us who can fix the problem, but to the bank it was non preforming and a bad spot on their books, making it not worth the 100k to them because if it isnt producing cash it isnt an asset.
The “Paper Trade” and “Overtrading” - Posted by John Behle
Posted by John Behle on February 08, 2000 at 22:14:05:
I read through the article you mentioned. I do things a little differently. We offer to pay full price for the REO property and sell the mortgages to the financial institution for “face value” - at a 5:1 ratio.
Example. Mr. Banker, if you will buy this $500,000 note from us (or loan us against it - they usually prefer to buy), we will take $100,000 of those funds and buy this REO property.
The banker and I live in different worlds as far as “yield” goes. I may buy a note at a 15% yield that they would be thrilled to have at 10%. That yield spread is what makes up the discount that is turned into the REO property. I realize the discount in the property and the property is free.
This works with REO’s or any assets that a banker has. It can be cars, mobile homes, jewelry, etc. We did one with a banker on a “Topaz” gemstone one time.
In my materials it is called “overtrading” (The Paper Game book and also the video series). I’m not sure about Terry’s materials. I know it’s in there, but I haven’t read them.
The concept is much the same as the “Paper Trade”. There are some articles I’ve posted that should help you. At www.papergame.com there is a free articles section and the ones that address this are:
The Best Things in Life are Free.
Full Funding Options.
How to Pay Full Price and Profit.
Each of those talks about the “Paper Trade” concept and should help you to understand these three related techniques. 1) The Paper Trade 2) The Discount Substitution 3) Overtrading.
Re: TRADING NOTES FOR ASSETS, TAKE 2 - Posted by John Behle
Posted by John Behle on February 08, 2000 at 13:10:33:
Sorry about that. Sometimes I don’t notice a post when I’m busy or I look at it and decide it will take some time to answer and it slips through.
I’m not automatically notified of any posts here. If I don’t notice them or it gets marked as “read” by my browser, I may not get to them. I am extremely familiar with the concept you mentioned, but not with the article you referenced. I’ll look at that and get back to you later.
Re: The “Paper Trade” and “Overtrading” - Posted by K.Alan_TX
Posted by K.Alan_TX on February 10, 2000 at 24:58:06:
J. Behle: This example of aquiring real estate (or any other type of assets) seems to be a very exciting and exclusive way to aquire an enormous amount of wealth/cash. It seems as though this is something I can do exclusively as a part-time real estate investor (eventually full-time.) What recommendations would you have in getting started and doing it right? There is an r.e.o. next-door listed for 289,900.00 I would like to get my hands on. The agent wanted to list it for 10k less because of cosmetics, lawn, and dry lake front. I figure it would take 1.3M (face value)in notes to find and sell to the bank, using 300k of it to buy back the house. This may be too big an undertaking for a beginner but I’m sure there are hundreds more out there in my area that are in a more marketable price range. How difficult is it to find these notes with adequate discounts to make these deals happen? Does this look easier than it really is or is it really that easy to do? Thanks for any advice and ideas you can give me.
I’'ve been planning on posting questions regarding this subject the last few days anyway and this seems like the time.
John, you said that you tell the bank to buy this paper from you and you will use the proceeds to buy their problem. Is this the specific way to word this stuff for banker ease, instead of saying I’ll trade you these two notes for your non performing asset?
Reason I ask, is that I have thought about approaching the bank on the problem I have where they have the first and I the second. If I could trade them paper I have for the 150k or so balance, that I’m in for only 75-80 cents on the dollar, it would both give me control and better exposure on my second. I hoping it would pretty easy for me to get someone to fund the cash at 60% or so LTV or so.
The numbers briefly 200k property, 150k first, I trade a 150k paper to them, they get performing paper and I get someone to fund 120k secured by the property, I still hold my second.
Re: TRADING NOTES FOR ASSETS, TAKE 2 - Posted by Kristen
Posted by Kristen on February 08, 2000 at 20:07:03:
Thanks John I look forward to hearing what you have to say.
I have access to notes/mortgage paper but have questions about the logic of the trade for property concept. Actually I have lots of questions? Will you discuss this type of transaction in Atlanta? Or would
one of your books be a better option?
Thanks
Re: The “Paper Trade” and “Overtrading” - Posted by John Behle
Posted by John Behle on February 10, 2000 at 16:36:22:
The key to it all is putting together a portfolio of notes and/or finding an existing portfolio that you could buy or joint venture with.
That is the place to start. Buying and funding the notes through private investors. It is possible to do the deal with the bank’s funds or through refinancing properties, but it is way too much of a negotiation challenge.
I ran into that technique in 1980 through John Berven. When I first started using this technique I concluded it was just way too difficult to try to negotiate without having a portfolio of mortgages to begin with.
It’s nice because notes are so profitable as an investment, but there are over a hundred of these techniques to further increase the profits.
My live dog for your dead cat… - Posted by John Behle
Posted by John Behle on February 08, 2000 at 23:34:14:
Yes. They ought to go for this in a minute. “Creative Banker” is an oxymoron - except in a case where you are talking trading a good performing asset for a non-performing one. Then they open their minds.
In your case, they don’t even have to put cash in to solve their problem. It’s kind of like “want to trade my live dog for your dead cat?”
Re: The “Paper Trade” and “Overtrading” - Posted by K. Alan_TX
Posted by K. Alan_TX on February 10, 2000 at 19:16:38:
John, Thanks for the reply.
Just a few more questions if you don’t mind.
Once I have a portfolio of notes or one I can joint venture in, is it still a tough negotiation? Seems as though it is a big win-win arrangement for me as well as the bank. How many banks out of 10 will jump at this kind of deal? If I could do this type of deal once a month, a million or more a year in profits is not inconceivable. Your being in the business all these years, could you tell me if this is a realistic goal for someone interested in investing and trading in discounted notes. Is obtaining 300k to 1.5M in notes per month for a portfolio realistic for a one man show. What would you say is realistic?
Once again, thanks
Re: The “Paper Trade” and “Overtrading” - Posted by John Behle
Posted by John Behle on February 10, 2000 at 22:20:11:
It’s difficult in negotiations just to get them to listen. If they truly do, they are interested. Many are so closed minded that it’s hard to even get an “audience”.
It’s best to start with little deals and build a track record. As you accumulate the portfolio you can do the smaller version of overtrading with Repo’s of cars or other smaller items. In those cases, the institution (usually the smaller ones - Credit Unions, etc.) can loan you money against the note. Simple example. You buy a 50k note for 35k. The bank loans you 45k against it and even holds the note as collateral and services it to make sure they get paid. You then take the 10K and buy one of there repo cars.
My strategy is different than the one mentioned in the success story. I don’t dicker much on the price of the institutions “Non-perfoming Assets”. So what if the car is worth 9k and I pay them 10k so they don’t take a loss. It’s still a free car.
Re: The “Paper Trade” and “Overtrading” - Posted by K.Alan_TX
Posted by K.Alan_TX on February 11, 2000 at 10:24:46:
John, Thanks again for the info and example. In your example: 50K Face value note, 35K Note cost, 45K Bank loan to purchase note, 10K to buy repo, and 5K left over. That 5K is part of my equity or net worth as well as any cashflow I may get out of the note since I still own it, right? If this is so, I can see why you do it this way. You get the note, the repo asset, note equity, and possible cashflow. Could you slightly expand on this example showing any cashflow and note equity? Thanks.
Any tips on how to get to the right person? I called today to start talking to the bank about trading some assets. Got the foreclosure/bankruptcy dept. Where the defaulting loan is and they couldnt direct me? it’s a big bank, perhaps the biggest, and I’m rather lost on how to get through the red tape and find someone who understands anything? Is this gonna be teaching a gorilla to dance? Or should I be looking for a certain kind of dept.
Re: The “Paper Trade” and “Overtrading” - Posted by John Behle
Posted by John Behle on March 02, 2000 at 11:50:53:
When it’s all over, I have a $50k note with a $45k loan against it from the bank. I have $5k equity. If the loan with the bank is at or near the face rate of the $50k note, then I would have a positive cash flow also. If I go a little higher in interest rate to entice the bank, then it may leave little or just a break even cash flow.