Investors, Contractors and Developers

 10-2-15 investor picture

Welcome  investors, contractors & developers section – –

We have created this section to give you an idea of how a cash flow system would work for you.

  1. Investors

  2. Contractors

  3. Developers

Many times the way the cash flow systems works for one of the above it could work for all three.

 

The investor who understands the time value of money and the power of cash flows will be the investor who gets very rich.  A Newsweek financial writer has said “the two most powerful forces in the world are gravity and the time value of money.”   Few investors really understand that power.  A financial calculator is one of the best tools anyone with an interest in real estate can own.  The books that come with the financial calculators make most functions easy to understand.  Mortgage tables are obsolete.

 Through the hand-on use of a financial calculator you can learn:

  • The present value of a series of cash flows

  • Your yield on a series of payments

  • The cost to finance a house

  • The effect of early payments on home loans

  • The yield on a mortgage

  • The differences between various mortgages

  • How to buy and finance investments with mortgage notes

  • How to buy real estate at tremendous discounts using notes

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Contractors may do a major job for a homeowner,

 Like putting in a swimming pool, building a deck, remodeling a kitchen, adding a room, or anything else you can imagine. If the job is big enough, the homeowner may ask the contractor to carry part of the cost, perhaps a large part.  

The contractor may agree for a number of reason.  If he has good cash reserves, a portfolio of liens that pay each month may provide good cash flow stability for the business.  More often, however, the contractor needs to keep the crew working and needs both jobs and cash to do so. 

The homeowner may say something like “I want to remodel my kitchen, and I have $5,000. to put down on it.  Can you carry the balance as a lien against my house?” 

The lien is a mortgage note (paper) secured by the property and so it is just as valuable.  The only difference is that no sale of property has taken place and it is called home improvement paper.

The contractor needs the job, so he agrees.  If the issue of the paper is brought up before the contractor quotes a price, however, he may quote a higher price to cover the cost of selling the paper.  The contractor knows the only way to get cash is to sell the note, which won’t sell for its face value. (time value of money)  If the note issue comes up after a price has been quoted he may point out that if he has to carry paper the price will have to be higher.

In this deal the homeowner had paid $5,000 down on a $30,000 kitchen remodeling project, giving the contractor a $25,000 second mortgage.  

It cost the contractor a lot more than $5,000 for the materials and labor to do all the work of remodeling the kitchen.  He needs his money as soon as possible, so he sets up the mortgage note to be attractive to National Note Buyers.  He also protected himself in the event he could not sell the note for one reason or the other. 

The mortgage he accepted was amortized over fifteen years, with a payment of $20,454.11 due at the end of five years.  That meant sixty payments of $275 (five years until the balloon) and then the balloon.  

The mortgage in reality had two parts: 

  1. The cash flow of the payments

  2. The lump sum of the balloon

He came to National Note Buyers and asked:

  • Could he sell National Note Buyers the note 

  • How fast the note could close.

After looking at the items needed to close and the loan-to-value ratio and other factors, it was decided that this was a good deal.  After negotiating with the contractor and the usual dickering back and forth there was an agreement of a price of $15,000.  and he 
 


Developers will usually hold paper on something they have developed.  They are constantly running from project to project and subsequently from construction loan to construction loan.  They know the power of time value of money and have good knowledge on the creation of paper

 

The developer advertises his/her property with “SELLER FINANCING” increasing his/her market response by 1/3 by offering :

  1. Easy Qualifications
  2. More Flexibility
  3. Low Down Payments

Often times INVESTORS dwell upon which investment to purchase or get into.  That question leads us to give you the advantages of both.

STOCK MARKET

Usually a short term investment. Some investors say STOCKS are a better deal?

STOCKS OFFER SOME LIQUIDITY.

Pricing go up and pricing goes down.

Some say more profits

Volatile market at times.

Inflation can take down values.

Investors have hard time deciding which to buy or sell.

REAL ESTATE SIDE

usually A LONG TERM INVESTMENT.

Fixed ASSET IS ALWAYS BEST.

R.E. has steady appreciation even in l0usy markets.

Real Estate is always more saleable.

Property values can always go up and down in any market.

 

EXAMPLE AD TO BE PLACED IN LOCAL NEWSPAPER:

HAVE IT SOLD IN 1 MONTH:

FOR SALE BY OWNER

ASSISTANCE PROGRAM

Seller Advertises with Seller Financing

 

National Note Buyers does  all the rest, including:

  1. Pre-Qualify Buyer 

  2. Purchase Agreement Negotiations

  3. Disclosure Statements

  4. Financing Assistance

  5. Purchasing Note From Seller