5 Ways To Cash In On Notes

Table of Contents

Table of Contents ...........................................................................2

Welcome..........................................................................................3

Introduction ....................................................................................4

The Main Players ............................................................................5

Strategy #1 Earn A Referral Fee ...................................................8

Strategy #2 Participate In Partial Purchase ...............................10

Strategy #3 Invest For Interest Income ......................................12

Strategy #4 Build A Retirement Portfolio ...................................14

Strategy #5 Restructure The Note ..............................................16

Keys to Success ...........................................................................17

Finding Notes ...............................................................................17

Working With Funders .................................................................17

Note Business Training ...............................................................17

Fred’s Personal Story ..................................................................19

Tracy’s Personal Story ................................................................20

Dear Information Seeker,

Fred and I would like to personally welcome you to the lucrative world of
private note investments.

Each day properties are bought and sold on credit through the big guys.
You know, those banks and mortgage companies backed by Wall Street
money.

Did you realize that billions of dollars in debt financing also takes
place in the private arena, outside of traditional bank markets?

It is this private financing market that serves as the foundation of the cash
flow business. The note industry, also known as the “paper business”, has
been providing us with personal income, flexibility, and financial
independence for over two decades.

Even better, the demand for private notes is at an all time high.

Why? Well the struggling economy and the sub prime mortgage meltdown
are causing more buyers to be turned down by banks leading to an
increase of seller financing. Note creation continues to climb past levels
we’ve not seen for 10 years. In 2013 we saw a 7.5% annual increase
following a 15% increase in 2012 (Source: Advanced Seller Data Services
Statistics)

How Are Private Real Estate Notes Created?

When a seller allows a buyer to
$110,000 Sale Price
Seller Receives make payments over time for the
$10,000 Cash purchase of property (instead of
$100,000 Note going through a bank), it is known
as owner financing.

Buyer You might also have heard it

Receives House called seller financing, owner carry
& Makes Payments
to Seller
back, private mortgage note, all
inclusive trust deed, land contract,
or an installment sale.

In a nutshell, the seller agrees to “be the bank.” This private financing by
the seller takes the place of a traditional bank loan. The buyer receives the
house while the seller receives the down payment and an IOU (or note) for
the balance.

Why would a seller accept payments over time from a buyer?

A seller might be looking to

attract buyers or sell a property
fast in a slow market.

It can also be the creative

solution when the buyer or the
property fails to qualify for
traditional bank financing.

For some savvy sellers it is a

strategy to generate long-term
interest income and maximize
the selling price by offering easy terms.

The seller now holds a note and is entitled to a future payment stream or
cash flow. But creating the note is just the beginning. There is also a
lucrative secondary market for the purchase of privately held debt.

After a few months or years go by, sellers often grow tired of waiting for
those payments to trickle in each month. They may prefer a lump sum of
cash to:

• Pay bills
• Take a vacation
• Make a new investment
• Send a child to college
• Or meet the multitude of life’s money demands.

To receive cash now, a note holder can sell or assign

the right to receive future payments to an investor!

The investor researches the transaction, known as due diligence, and once
satisfied pays the seller cash in exchange for future payments. The
investor also pays a referral fee to any note finder, consultant, or note
broker that brings them the deal.

This creates numerous moneymaking opportunities for both immediate

cash and future income including:
 • Earn thousands in referral fees by matching sellers with investors
• Purchase notes for interest income, with little to no money of your
own
• Negotiate to buy notes at a discount for double or even triple digit
yields
• Offer owner financing to sell properties you own
• Buy property at favorable terms, even when banks say “No!”
• Access self-directed retirement funds for tax-deferred or tax-free
investing
• And the list goes on...

Still wondering how this might all apply to you? Well, consider it from the
eyes of each of the four primary players in a seller-financed transaction.

Property Buyer
Would you like to buy your own home but have been turned down by the
bank?

Are you a real estate investor on the hunt for flexible new financing
options?

All across America, seller financing is providing a “Main Street” solution to

the “Wall Street” banking meltdown.

Property Seller/Note Holder

Need to sell a property quickly, even in a slow market?

Searching for ways to maximize sale price and build future income?

Advertising “owner will finance” can attract more buyers and help maximize
the sales price. A property seller may also elect to take back a portion of
the sales price for long-term interest income.

Why should the banks make all the money?

Did you realize that a bank earns back over 2.5 times the loan amount on
an average $100,000 loan at 8.0% interest that runs for a full term of 30
years? The payment would be $733.76 based on a 360-month
amortization, which means the buyer will pay back $264,153 after 30 years
on the $100,000 loan. All due to the power of interest!

Note Broker/Consultant/Finder
Searching for full or part-time income working from home?

A note broker or note consultant earns a referral fee by acting as a

financial middleman between a note seller and a note investor. Also
known as a note finder, they market to note holders offering to help
liquidate the note payments for cash today.

The note broker then connects the note seller with a note investor, earning
a fee at closing. This fee can range from hundreds to several thousands of
dollars depending on the size of the note and the relationship with the
investor.

Investor
Hoping to build a nest egg or rebuild a damaged retirement portfolio?

Seeking an investment that can provide double-digit returns?

Investors purchase notes for the interest income. In addition to the interest
rate charged on the face of a note, an investor can increase their return by
buying the cash flow at a discount.

Rather than holding for long-term interest income, an investor might also
purchase a note at a discount and then resell at a later date for a profit.
Similar to property rehabbers, note flippers might buy a distressed note,
work with the payer to bring it current, and sell as a more valuable re-
performing note. Or it could be as simple as seasoning a new note for 6-12
months with a verifiable payment history to improve the resale value.

Over the years we have made money using seller financing as the property
buyer, property seller, broker, and investor (just not all on the same single
transaction). Many people get their start in this business as a note broker
or a real estate owner and then move into other seller financing profit
areas as an investor.
The note or paper business is a legitimate industry that provides a useful
service and the opportunity to make money. But like all business it takes
work and know-how.

We feel the time has arrived to remove the cloak of mystery surrounding
buying, selling, or brokering notes. Our goal is to separate the myths from
reality when it comes to seller financing and private mortgage notes.

There are simple truths surrounding owner-financed notes that should be

revealed. Too many people leave money on the table through lack of
knowledge. Worse yet, others prey on their lack of information.

What if you had inside information? What if there was someone who really
knew the secrets that could make or save you thousands of dollars? Well,
there is. In the following pages of this report we reveal our favorite 5 Ways
to Cash In On Notes!

To Your Success,

Tracy Z. Rewey and Fred Rewey

Founders of NoteInvestor.com
 5 Ways To Cash In On Notes
We aren’t big on theory so it seems the best way to show you 5 Ways to
Cash in On Notes is to use examples from past transactions! But first a
caveat…

The note business takes hard work. If someone claims it’s an easy road
with overnight riches please run in the other direction. These examples
are real transactions but individual results will vary. If you are starting out
just use the first and second strategies until you understand the process
and gain some experience. If you decide to invest in notes realize there is
a risk of losing your investment. Always consult with competent legal and
tax advisors.

The introduction provided an overview of how seller financed real estate

notes are created so let’s just jump into the thick of it.

Strategy #1 – Earn A Referral Fee

Referring deals to an investor for a fee at
closing will supply insights and knowledge,
enabling you to earn while you learn. We all
have marketing costs, overhead, and
personal expenses so referring notes to
“earn a living” or a cash fee at closing makes
good sense.

It also provides the marketing machine to

generate leads that can be matched with an
institutional investor, a partial investor with
tail-end opportunities, or your own portfolio.
Even when buying a majority of notes for
long term holding, it still proves useful to broker a portion. Not all notes will
fit your parameters and it helps to stay apprised of current market
conditions to keep pricing competitive and personal portfolios liquid.

This transaction involved the sale of acreage in the Tampa, Florida area.
The transaction had closed with owner financing and the seller had
collected one monthly payment when the note was sold to an investor.
Here are the details:

• Sale Price $237,640

• Down Payment $ 98,640
• Original Balance $ 139,000
• Terms: 6.5% interest, $878.58 per month, all due in 5 years

• Investor Paid $120,141.27

• Seller Received $115,141.27
• Note Finder Referral Fee $ 5,000.00

A $5,000 Referral Fee was earned for locating a note seller and
matching with a note investor.

So what does an average referral fee look like? While it varies by

transaction size and complexity, referral fees are generally 3-6% of the
amount invested.
 Strategy #2 – Participate In Partial Purchases
Looking for residual income with notes? Does
a future income stream of $1,000 per month
for 10 years on just one deal sound too good
to be true? While not typical on every deal,
there are transactions where the Buy Full Sell
Short strategy can be used to retain future or
tail-end payments.

This technique is based on your purchase of

the full payment stream from the note
holder/seller with the resale of a shorter
payment stream or partial to an investor.

This enables you to earn a fee on the initial sale of the partial to the
investor AND keep a portion of the future payment stream. These
payments remaining after a partial investment has paid off are also known
as the tail-end or back-end of a cash flow note.

Sounds a bit confusing? Let’s look at an example of the strategy in action!

We were approached with a well-seasoned note secured by five retail strip

mall type commercial units. The units had been purchased by a religious
organization to use as meeting facilities. The particulars looked like this:

• Sale Price: $135,000

• Down Payment: $10,000
• Original Balance: $125,000
• Terms: 10% interest payable in 360 payments of $1,096.96 per
month
• Remaining Balance: $121,248.52
• Remaining Term: 306 months

We negotiated to pay $92,804 for the full purchase of the remaining 306
monthly payments. We took a full assignment and purchased the entire
note payment stream from the seller.

We then negotiated to sell a partial of 186 monthly payments for a

purchase price of $95,046.
We realized an immediate profit of $2,242 on the sell of the note AND
retained the right to receive 120 monthly payments of $1,096.96 each
commencing in 15 ½ years.

To recap:

• Payments bought: 306

• Payments sold: 186
• Payments retained: 120

A referral fee of $2,242 was made at closing but even better; we

retained the rights to a future residual income stream totaling over
$130,000 ($1,096 payment x 120 months).

All from harnessing the power of compounding interest using the Buy Full
Sell Short strategy or the tail-end payments on the note.

Update: This note ended up paying off early with a nice surprise payoff.
You can read about it here.
 Strategy #3 – Invest For Interest Income

Let’s face it. Wandering down to your local

bank and opening up a savings or money
market account is just not going to pay off
big.

Traditional thinking is to sock away your

hard-earned money into a regular retirement
account and hope your nest egg is big
enough by the time you retire.

The fact of the matter is that most people are

going to come up way short when they punch
their final time card.

A recent survey revealed the average baby boomer is half a million dollars
short with 74% saying they will rely heavily on Social Security. The result?
More people are working over the age of 65 today than ever before.
(Source USA Today on Retirement Living).

So what does this mean to you? Don’t be average!

Traditional investing will probably leave you short. You have specific goals
for your retirement and chances are it is the ability to do things you want –
without the worry of how to pay for it.

Today’s savvy investors know they need solid returns backed by secure
assets they can control. This is one of big attractions to note buying.

When you own a note, you are acting like the bank. You are the one
receiving the payments. If something needs fixed the owner has to do it.
And like the bank, you also have the right to take the house back in the
event of non-payment.

To make the situation even better, you can structure a transaction so you
are not owed anywhere near the value of the property. Known as
Investment-to-Value or ITV, investors can decide how much to invest and
what portion of the remaining monthly portions to purchase.
This transaction in Pineville Oregon is a great example of structuring a
win/win for all parties. Unable to obtain bank financing due to the property
type, the seller agreed to take back a note for the buyer.

• Sale Price $120,000

• Down Payment $ 7,000
• Original Balance $ 113,000
• Terms: 9.5% interest, $987.28 per month, 300 month term

The sellers, being of retirement age, wanted something more than monthly
payments. After closing, they sought to sell the remaining payments but
the buyer had very little equity on a hard to finance property. To limit the
exposure a lower ITV was necessary. A partial purchase was a natural fit
but due to the seller’s age they didn’t want to wait to receive payments on
the back-end.

The solution? A split payment partial purchase letting the seller continue
to receive a portion of the payment each month and a lump sum of cash.

Amount to Investor Each Month: $778.21

Amount to Seller Each Month: $209.07

Buying a portion of each monthly payment provided a return on

investment of 12.5% yield in an asset backed by real estate.

A third party escrow company serviced the note payments. Each month
they collected the payment from the buyer and then split the disbursement
between the seller and us as the investor.

Later this note went into default making us very happy to have a lower ITV.
We were able to resale the property to a new buyer (using owner financing
of course) and agreed to continue a similar monthly payment split with the
seller.

The new buyer eventually paid the note off early when they obtained a
bank loan to build a new home that qualified for financing. We like early
payoffs! Due to the time value of money accelerated payments increase
your yield as an investor (but more on that in Strategy #5).
 Strategy #4 –Build A Portfolio With Self-Directed IRAs
Thinking that sounds great but where do I
get the money to invest in notes? Did you
know it was possible to use your IRA, Roth,
Simple, SEP and/or 401k retirement account
to buy notes?

Tired of dismal returns in the stock market

many investors are turning to notes and real
estate through self-directed retirement
account administrators. This provides
access to capital and takes advantage of
earning money tax deferred or in the case of
a ROTH, tax-free!

This concept allows us to aggressively pursue small balance notes for

possible double to triple digit yields backed by real estate. You will find
small balance notes under $30,000 are often overlooked by larger
institutional investors due to their balance minimums. This provides high
yielding investment opportunities for private investors and self-directed
retirement accounts.

This well-seasoned transaction involving an owner-occupied 1971 mobile

home with land in Texas provides an excellent example.

The property had sold with owner financing for $32,500 with less than 5%
down. After collecting 95 monthly payments the note seller desired to sell
the remaining payments for cash today. The payer still owed a principal
balance of $8,924.50 with 9% interest payable in 25 remaining installments
of $392.88 per month.

With a slow payment history, delinquent taxes, and lapsed insurance, there
were few interested investors. Satisfied with the equity position against the
land value alone, a private self-directed retirement account made a net
offer of $2,531.

The seller, tired of the headaches and in need of cash, accepted the offer.
The Note and Deed of Trust were endorsed and assigned to the
Retirement Account Administrator for the benefit of (FBO) the individual
retirement account.
By investing $2,531 for the right to receive all future, the self-directed
IRA was able to yield a return of over 180%.

The note eventually paid in full, however, if the buyer had stopped making
payments the retirement account could have foreclosed and resold the
property.
 Strategy #5 – Restructure The Note
Anytime note buyers can accelerate
payments on cash flow notes it creates an
opportunity to increase the yield. One method
is to simply go for an Early Payment With
Incentive. To this day, the following situation
is still my favorite example of this method.

It was late December and we were looking at

a small note with a $10,000 balance. The
payment was only $132.15 per month with a
10% interest rate and 120 payments left.

The note had been purchased at a discount for $6,000, which made for a
24% anticipated return.

Not bad…but we could do better! After talking to the payer we saw an

opportunity to get an early payoff. They were very excited about their
football team making it to the Super Bowl.

My comment was, “Tell you what. If you can pay off your note, in full,
before the Super Bowl, we will give you a big screen TV to watch the
game.”

They did payoff the note in full and received their TV!

So here is the math…

The payer made two payments on the $10,000 note bringing the balance
to $9901.96.

We purchased a big screen television for $2,000.

That means we received a NET payoff of $7,901.96.

The full payoff was made at the two-month mark so we also received two
payments of $132.15 prior to the payoff.

What was the yield? It came to a 201.87% just by accelerating the

payoff with an incentive.
 What Does It Take To Be Successful With Notes?
Like most business start-ups the recipe involves mixing knowledge,
marketing, funding, and a growing industry with hard work, passion and
persistence.

Brokering and buying notes is not a get-rich-quick business – frankly, we

don’t believe there is any such thing. No, the note industry is like any other
business where you work for yourself – it does take work.

We think most people are not afraid to work. What they want most is to be
fairly compensated for that work and have a bit more free time to spend
with family, travel, and pursue their passions. So what are the keys to
cashing in on notes?

Marketing and Finding Note Sellers

Marketing is the lifeblood of any company. The number one commitment of
your time will be marketing to find the note holders receiving payments.

Some methods like networking and reverse ad marketing require a greater

commitment of time while ads and direct mail carry higher costs. No mater
how you market it will take your time or your money… and you don’t want
to waste either!

Working With Note Buyers

Once you find the deals you will need access to note buyers. When
starting out there are advantages to working with institutional type
investors before venturing into the world of private investors.

When a seller accepts an offer and signs a preliminary agreement the

investor will start the due diligence process. This includes checking for
clear title, determining the property value, verifying payment history,
reviewing the buyer’s credit, gathering documentation, and making sure
real estate taxes and property insurance are current.

Note Business Training

While it’s possible to earn while you learn getting a little knowledge up front
can jump start your business, save a lot of time, and keep from wasting
money. There are numerous options and your selection will likely come
down to:
 1. Experience
2. Cost
3. Content

Any quality training should include:

• Proven Marketing Materials (not theory)

• Scripts and Tips for Conversing With Sellers
• Sample Transactions
• Ready to Use Forms and Documents
• How To Calculate Yield, ITV, and LTV
• Ways to Analyze a Transaction for Viability
• Underwriting and Closing Processes
• Direct Access to Note Buyers
• How to Own Notes For Residual Income

Believe it or not you can receive all of this in our Finding Cash Flow Notes
Training for under $300. That’s less then the cost of just one textbook at
many colleges. The power of the Internet now lets us share our 40+ years
of combined experience with you in the comfort of your own home at an
affordable price.
 Our Personal Stories
Thanks for taking some time to learn about the cashing
in on notes! Before you go we would each like to share
our personal stories of how we got started.

For Me, It Started In a 500 Square Foot

Apartment…Fred Rewey

When I am asked where it all started for me, my

journey in the note industry, it all points back to my 500
square foot apartment.

Not exactly the mansion of your dreams.

I knew I wanted something better for myself, but frankly, had no clue where
to start.

Like everyone else, it was difficult to separate the real opportunities out
there from the "noise" - you know, false promises of riches, boats, fast
cars, etc., etc.

Now, I never really cared about the boats and such, but I did want to be
financially independent.

I wanted to travel. I wanted to see the world. And, for the most part, I
wanted a job I could do from anywhere.

In a moment of chance, much like you finding me I suppose, I found a

gentleman that taught me how to buy notes.

Here is the funny part.

I remember saying, "Now when I have money, I will know what to invest in
for good returns and minimal risk."

My friend turned to me and said, "Why wait until you have your own
money?"

I smile even as a type this. The concept of using other people's money to
buy notes had not occurred to me.

To make it even better, he handed me a list of people that would give me

the money.
I was hooked.

I won't say, "The rest is history" because there was a lot more adventure to
it. But, it was THE BEST decision I have ever made (except maybe
proposing to my wife!)

The giving back part...

I had many goals once I succeeded - most of which I have long since
accomplished.

One goal was to create both a note training and website that could help
those that were in the same position I was - a 500 square foot apartment
trying to figure out how to break out of the rat race.

Where do you want to go today?

If you are trying to find a place for yourself - financially, emotionally, or

wherever - then checkout the note industry. No question it changed my life,
and maybe, just maybe, it can do the same for you.

All the best,

Fred Rewey

Just A Small Town Girl…Tracy Z. Rewey

Many people in the finance industry like to talk

about how they came from big cities and big
corporations. How they were always in the "fast
lane" when learning their trade.

My beginnings were a bit more in the

trenches.

I grew up in a small town... a very small town.

Matter of fact, the population was about 3,500
people and located in a rural area near the U.S. and Canadian border.

I started working for an attorney's office that was involved in all sorts of real
estate transactions.

There you see the faces of the people behind the deals. You experience,
first hand, what motivates them and why they need alternative financing
options.
It was a great training ground.

It was there, in 1984, that I was first introduced to seller-financed notes.

Due to financial restraints, getting a college degree was not in the cards. A
few years later, I moved to the "big city" (population 250,000) to find my
fortunes and went to work for what was the largest national buyer of
private mortgage notes.

I started in the closing department and worked my way up to investment

analysis and Vice President of the company. At the highest point, we
purchased nearly 25 million dollars in cash flow notes - a month!

There was only one problem.

While working for the investment company, we couldn't buy notes for
ourselves. Understandably it was considered a conflict of interest since we
were supposed to be buying them for the company.

In 1997, everything changed.

It was then that I decided to leave the cushy corporate job and go out on
my own. I co-founded Diversified Investment Services, Inc. and declared
myself a note buyer.

It turned out to be the best decision I have ever made.

I had the ability to work for myself. Create a flexible schedule around my
daughter's school hours. Travel when and where I wanted. Buy notes for
my own account or refer them to other investors for a fee.

Having my own note buying company afforded me flexibility I never

imagined. Soon others were asking for help with their own note business.

Helping others was the easy part...

The creation of NoteInvestor.com and FindingCashFlowNotesTraining.com

was a great way to give back to people already in the note industry along
with those that were looking to start.

There were three goals:

1. Provide honest real world information.
2. Avoid the hype and give a realistic view of the note business.
3. Keep it affordable so price and knowledge were never barriers.
Based on feedback, I feel we've succeeded! What people are most
surprised by is that Fred and I personally respond to comments, write
articles, and share our hard earned knowledge. Frankly, I am not sure how
to do it any other way.
My background really shows it doesn't matter who you are...or where you
come from...you have a chance to succeed in the note industry.

Over the next few weeks we will be sharing more with you about the note
industry, the players, and ways you may profit from it.

I look forward to working with you, and don't hesitate to contact me with
any questions.

To your success,
Tracy Z Rewey