What is the number one problem for every real estate investor?  MONEY!

Twenty years after I started in real estate investors are still scrambling to find money for their real estate deals.  A few days ago I talked about having to go back to my real estate roots to find solutions to my everyday financing struggles.

Twenty years ago a flier showed up on my desk that said, “close more deals without any bank financing.”  I called the number, talked to a woman and bought a course on Seller Financing.

What is Seller Financing?
“Seller Financing” or “Owner Will Carry” are the magic words that make any product or service more salable.  In real estate, financing is created between the buyer and seller.  The seller agrees to receive their equity or profit in the form of monthly payments with interest over time (paper).   To create this type of transaction, a promissory note (IOU) is signed between the buyer and seller.  The promissory note is called the debt instrument.  A lien is then place on the property.  The legal name for this lien is Deed of Trust or Mortgage.  The lien is called the security instrument.  The buyer (borrower) makes monthly payments for a specific period of time at an agreed upon interest rate.  If for some reason the buyer (borrower) stopped paying the seller (lender) their payments, the lien (security instrument) allows the seller (lender) to foreclose and take back the property from the buyer (borrower).  That was a mouthful and I wrote it that way so you can see who the players are when seller financing is offered.

This created financing between buyer and seller is also called real estate paper.

With the collapse of the housing market together with the credit crisis, getting any type of real estate loan has proven difficult.  Those who were labeled “strong borrower’s” are having to jump through countless “documentation hoops” only to find out in the eleventh hour that their loan has been denied.

If you want to compete in today’s real estate investing market, you should arm yourself with the understanding and mastery of seller financing or real estate paper.  When you understand the time value of money, interest manipulation, discounting, defaulted real estate paper, compounded interest and yield, you’ll open up a whole different world to real estate acquisition.

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My journey back to my real estate roots has reminded me that “Real Estate Paper” is the key to succeeding in Real Estate and here is the proof.

I want to show you a letter from GMAC

$75,000 Reduced To $6,000

The owner took out a $75,000 2nd mortgage on the property.  I know how to manipulate the financing and because I understand the “paper principles” I was able to get the debt settled for .08 cents on the dollar.  The best part is that GMAC will accept the $6,000 as “complete satisfaction.” which made my seller extremely happy.

In the comments below, guess what it cost me to control this deal?

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Yesterday I mention how investors have been pitched and sold on the concept of the “overpriced analysis software that removes creativity” Some of the big name Guru’s have been selling these systems for years. I admit to being one of those who stood in front of crowds and said “this is what you need to take your business to the next level.”

I was wrong.

Those systems have their good points but it’s a system you never own. You pay a hefty upfront fee and a monthly fee and “you own it as long as you pay the monthly fee.”

The days of “pushing a button and getting rich” are over. You’re going to have to look at your deal from a purchase perspective and two or three selling perspectives in order to survive. Calculating the transaction downside went out the window when the market exploded and every Tom, Dick and Harry decided they wanted to be a flipper. Today watching your downside is the most critical piece to your investment survival.

The instrument needed to calculate your downside is a $35.00 calculator. I have used the HP 10B, 10BII, 12C, 17B and the 19B. I prefer the 19B but the investment is north of $150.00.

If you really want to learn how to find the fun in real estate investing and if you want to learn the correlation between real estate and real estate paper; your going to need a calculator to do it. Not some fancy software but a calculator; the HP 10BII works just fine.

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The summer of 2009 has been the hardest in my business career both inside the real estate world and out.

My real estate business has found some incredible opportunities. I have been able to get some fantastic discounts because of the current economy. My problem is the same problem you and ever other investor are having; finding affordable long-term money. I have been successful in arranging short term financing but making my investors whole and cashing them out with long term financing has been a tremendous challenge.

If I had to describe my emotion they have ranged from pissed off to angry, frustrated to rage. I even said those words I would never say; “my real estate business isn’t fun anymore.”

I sat down about a week ago and decided I would review some of my past deals. I went all the way back to my beginning and started reading my notes on properties I had sold.

Here’s what I found; my deals were easier, they were more fun and most of them never involved a bank. I also saw how I took my short-term investors and made them long term funding sources.  My definition of a long-term funding source is loan lengths of no less than 36 months.

Because long term financing was easy to get and banks had programs that fit my long-term solutions, I failed to remember the one thing that created the core of my business in the beginning and that is this.

“If your in Real Estate your in Real Estate Paper and if your in Real Estate Paper your in Real estate.”

Over the years I have learned how to manipulate the financing in a real estate deal.  This manipulation has produced easier deals, better relationships with my investors, a bigger and broader buyers list and more control.  No more fancy overpriced analysis software that removes creativity

The format of this blog going forward will be about

The Correlation Between Real Estate and Real Estate Paper.

Stay tuned

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