The biggest hurdle to get over for note investors is the problem of the discount. For the most part, the note holder has done little or no due diligence before agreeing to carry the paper. Yet they expect the note buyer to ignore underwriting the risk by paying them “full price” for the note. I even had one seller who multiplied his payment ($475.57) times the number of remaining payments (113) and insisted he deserved $53,739.41 for his note. Obviously the concept of the Time Value of Money was simple beyond his understanding.

We have reasonable success in overcoming this objection by using the following in our marketing:

WE CAN PAY YOU FULL PRICE FOR YOUR NOTE, IF YOU WILL GIVE US A TIME CONSESSION ON SOME OF THE MONEY!

If I may digress for just a minute, we use a contract with local investors and or our IRA sources that do not require any personal liability on our part. The investor looks to the underlying collateral to make him/her whole in the event of default. Email me at hdvorken@wf.net and I will be glad to send you a copy of the contract without any cost. Make the subject FREE CONTRACT.

As you no doubt know, growth inside a retirement account is either tax deferred or if it is a ROTH, it is TAX FREE for ever. Since there is no tax, IRA owners will accept lower returns. Think of the low rates on TAX FREE municipal bonds. Look at the chart below:

Yield on the Note Tax Bracket Tax Bracket Tax Bracket

10.00% 28% = 13.89% 32% = 14.71% 35% = 15.38

In other words, if income taxes are involved, the yield has to be the greater amount in order to net 10%. One note of caution even though they might except less then 10%, never sell a note for a yield less then the note rate, as there could be a problem in the event of an early pay-off.

You find the following note:

16 payments have been made on time

After a long discussion with the note seller, he admits that $37,500 would solve his problem. You offer to buy ½ of the note for ½ of the remaining payments. “I know you only need $37,500, but I’ll pay you $39,102.55. Will that be OK?”

N	I	PV	PMT	FV
112	??	39,105,22	772.02	0.0

I = 19.96

You offer an IRA a yield = to the note rate of 10.00% and they agree. You now have several choices

1. Sell all the payments to the IRA and make $16,967.92

$56,070.47 – $39,102.55 = $16,967.92

1. Keep $150 per month and make $6,073.68 up front and get $16,800 in payments over time.

Remember if you buy the note inside your own IRA, and then sell it to an investor, the profit goes NOT TO YOU, BUT YOU’RE IRA. If you buy the note and then flip it to someone else’s IRA, you can keep the cash flow and profits for yourself.

There is literally over a TRILLION Dollars in IRA’s Using these funds will make you more competitive in the note and real estate game.

Henry Dvorken

WHAT IS THE DIFFERENCE BETWEEN “A” and “B”

That’s a funny question you are thinking. “A” is the first letter of the alphabet, and “B” comes next. Everybody knows that. True, but I am thinking about A bigail and Betty, two real estate sales associates that were licensed under me when I was active in the brokerage business.I opened my own office in March of 1965. (Gosh he must be older then Methuselah by now) Almost. Anyway about August of that year Abigail asked me to sponsor her for a salesman’s license. She stayed with me for 20 years and almost every year was the top or close to the top among what later became 25 agents.

A few years after she came to work she married a nice man named Jim, and they moved into a rented house in a modest part of town. Every few years they would move to a larger more prestigious home. On many occasions Abigail would call my attention to a “bargain” in a residential property. “Why don’t you and Jim buy this for yourself”?, I asked. “Oh   no” she would say, we live in a much better property. “Besides we want to get our car payments paid off before we buy”. To make a long story short, “A” was very successful. If the truth were known, some years she had more net income then I did. Unfortunately she and Jim never invested in Real Estate. Jim passed away several years ago and Abigail had to slow down. She left me in 1985 when I closed my office and worked for other brokers over the years. Today she is living in very reduced circumstances on social security and a small pension from Jim’s company. She was a good associate, but she never prepared for her retirement, and she never possessed any entrepreneurial spirit.

And then there is Betty. She was working for another broker and had not made a sale in 6 months when she approached me to ask if I would let her “move her license”. It was always a toss up who was going to be salesman of the month between Betty and Abigail once Betty learned the business.

After about five years Betty came to see me. She came in the office, shut the door and began to cry. “I’m sorry Henry”, she said, “you have been so good to me, but I am going to open my own office in a few weeks.” Most Realtors are entrepreneurs, and Betty was only following the pattern. I had a choice to become angry or to breathe a deep sigh and wish her well. I choose the latter.

Betty and her husband Al opened an office on the ground floor of a downtown office building. They both worked hard. Betty did the selling, and Al even after he got his broker’s license did the follow through so necessary in a successful real estate office.

Because of their success, they soon attracted many of the town’s top salespeople, and within a few years had outgrown the 5 room downtown office. A widening of a major cross street near ColonialPark left a reasonable sized but triangular tract of land that Al and Betty purchased for very little since no one could figure out what to do with it. They built a very prestigious two story office building on this tract for their Realtor office.

When Betty first started with my Realtor office, she and Al owned a small brick ranch home in Fountain Park. Betty worked hard in that subdivision of about 500 homes and was soon known as “The Queen of Fountain Park“. It became almost impossible for anyone else to get a listing in that sub-division. When their home was paid for, they began buying other SFRs, and used the income from the unencumbered properties to pay off their latest acquisitions  as quickly as possible.

Later after they built the office building near Colonial Park, they were able to buy a bigger house in that subdivision.  While I am not exactly sure, today they own about 15 deluxe fully paid for single family homes and other property worth well in excess of $2,750,000. Remember this is Wichita Falls, TX. If these properties were in California they would be valued at over $5,550,000. On the other hand if they were in Arkansas they might be worth $1,250,000. Either way they bring in a net of over $25,000 per month.

Al is ill these days with a debilitating disease. Betty and Al closed their own office, and rented the building to another business. Betty worked for another agency for a year or two and was one of the leaders in that office. She has since retired to take care of Al, whose health continues to decline. Unlike Abigail they have more then enough income to provide Al with the medical help he needs.

While I understand that everyone does not have the entrepreneurial spirit, if you do, for goodness sakes begin investing in notes and real estate for yourself. If all you ever do is “flip” notes, or act as a factor referral agent, you may make an excellent living like Abigail and Jim, but you will never build independence and wealth like Betty and Al.

Now that you know the difference, what are you going to be, an “A” or a “B”?