I just wanted to thank Terry Vaughan for a great idea I got from his Paper Into Gold course. Although I purchased this course a couple of years ago, I hadn’t really tried all the ideas and strategies that the course contains. But the ideas I have tried have proven wonderful for me!
The deal that has just gone down is a paper trade for a house that a lender held as an R.E.O. property. Basically, I was able to trade several mortgages that I was able to get under an option contract for the property.
The total of the discounts on the purchase of the mortgage notes was a little more than the book value of the property to the lender. I was able to make the deal by showing the lender how they would be better off with the performing first mortgages than they would be keeping the non-performing asset. I used their cash to buy the discounted mortgages.
The total face value of the notes was roughly $460,000. I was able to option the purchase of these notes for $350,000 in cash. I gave $100 for the option, which was probably too much. I agreed to sell these notes to the bank for $350,000 in cash, if they would pay all the closing costs, and if they would give me an option to buy the R.E.O. property for $1.00 at the same closing. After a little questioning, they agreed.
The bank’s cash went to the owner of the notes. The notes went to the bank. The R.E.O. property, a house worth about $100,000, went to US, Inc. Everyone was happy.
The note holder sold his notes for cash at more than he could have in the open market, and he made a profit. He is a professional note buyer, and he got them for a greater discount than he took when he sold them in our deal. It helps your career to locate people like this.
The bank made a profit on the sale of the non-performing asset and on the purchase of the performing mortgage notes. They are in the business of collecting payment streams, or cash flows, so they like the notes much better than the empty house. They really wanted to do this deal when I reminded them about their liability exposure on the vacant house and the risk they were taking if someone were to get hurt on the property.
I also reminded them how much of their reserves were tied up by the non-performing asset, and how much of these reserves would be freed by converting the assets to the performing category. This would also help them keep the bank regulators happy. They couldn’t wait to do this deal once they understood it.
And yours truly was happy because I was able to buy a $100,000 house for only $1.00. Now I realize that it is not quite a no money down deal, but you do the best you can. I also do not have very much basis to depreciate, but I guess I will have to live with that.
I think you could do this in your town, too. This was just one idea I learned from Terry’s course. If some of you still think that it costs too much to pay for your education by purchasing an inexpensive home study course, then maybe you should try calculating the yield on my investment! That return can be yours, too.